Missing Them Yet? Investment Banker Directors in the 21st Century
Posted: 25 Sep 2019
Date Written: July 20, 2019
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: Suggested Citation