Missing Them Yet? Investment Banker Directors in the 21st Century

Posted: 25 Sep 2019

See all articles by Murali Jagannathan

Murali Jagannathan

SUNY at Binghamton - School of Management

Wei Jiao

Rutgers School of Business-Camden, Rutgers University

Srinivasan Krishnamurthy

North Carolina State University - Poole College of Management

Date Written: July 20, 2019

Abstract

Subsequent to the stricter corporate governance listing standards adopted by the NYSE and NASDAQ in the early part of this century and the independence requirements of the Sarbanes Oxley Act of 2002 (SOX), the number of investment bankers (IB) serving on corporate boards has declined significantly. We document that the firms that lose the relationship with the investment bank after SOX become relatively more financially constrained soon after. The evidence is similar, albeit weaker, after departures of investment bankers at the advent of the financial crisis. We examine the mechanisms through which the constraints might be lowered, and observe that firms with IB directors face lower underwriting spreads when they issue equity and debt. Inconsistent with the hold-up problem associated with IB directors, the market reaction to seasoned equity offerings in firms with IB directors are less negative than comparable firms. The results point to costs associated with the increased attempts to improve board independence.

Keywords: Investment Banker Directors, Financing Constraints, Sarbanes-Oxley Act, Board independence

JEL Classification: G31, G32, G34

Suggested Citation

Jagannathan, Murali and Jiao, Wei and Krishnamurthy, Srinivasan, Missing Them Yet? Investment Banker Directors in the 21st Century (July 20, 2019). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3457562

Murali Jagannathan (Contact Author)

SUNY at Binghamton - School of Management ( email )

P.O. Box 6015
Binghamton, NY 13902-6015
United States
607-777-4639 (Phone)

Wei Jiao

Rutgers School of Business-Camden, Rutgers University

Camden, NJ 08102
United States

Srinivasan Krishnamurthy

North Carolina State University - Poole College of Management ( email )

Hillsborough Street
Raleigh, NC 27695-8614
United States

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