The Effect of Blockholder Board Representation on Debt Contracting

49 Pages Posted: 17 Jun 2019 Last revised: 19 Jun 2019

See all articles by Blair B. Marquardt

Blair B. Marquardt

University of North Texas - Department of Accounting

Date Written: June 5, 2019

Abstract

I study the effect of a blockholder who sits on the board of directors on debt contracting. Theory suggests mixed effects of this condition on board quality as viewed by debtholders; blockholder-directors can simultaneously mitigate owner-manager conflicts and exacerbate shareholder-debtholder conflicts. I document that outside blockholders on the board are associated with a lower cost of debt, consistent with debtholders viewing them favorably. The effect appears driven by blockholder-directors who take long-term monitoring roles, as opposed to those with shorter or more adversarial aims. The evidence is also stronger when owner-manager conflicts are more severe. My research examines how lenders respond to a significant agency tension and suggests that a blockholder on the board has the potential to reduce the firm’s burden in borrowing.

Keywords: blockholders, board quality, cost of debt, blockholder-directors

JEL Classification: G23, G32

Suggested Citation

Marquardt, Blair, The Effect of Blockholder Board Representation on Debt Contracting (June 5, 2019). Available at SSRN: https://ssrn.com/abstract=3400811 or http://dx.doi.org/10.2139/ssrn.3400811

Blair Marquardt (Contact Author)

University of North Texas - Department of Accounting ( email )

G. Brint Ryan College of Business
1155 Union Circle #305219
Denton, TX 76203-5017
United States

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