How Do Board Reforms Affect Debt Financing Costs around the World?

36 Pages Posted: 9 Feb 2020

See all articles by Chen Lin

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Lai Wei

Lingnan University - Department of Finance and Insurance

Hui Zhao

China-ASEAN Research Institute and Fordham University

Date Written: January 16, 2020

Abstract

In this study, we examine the effect of worldwide board reforms on the cost of debt financing. We find an overall increase in loan spreads in countries that initiate board reforms versus those without the reforms, which suggests that board reforms strengthen the power of shareholders at the cost of debtholders. The effect is larger for firms with greater inherent conflicts between shareholders and debtholders. Moreover, we find reform components related to board independence and separation of CEO and chairman lead to the increase of debt costs, whereas the component to improve audit committee independence help decrease debt costs.

Keywords: Board Reform, Cost of Debt, Shareholder-debtholder Conflicts

JEL Classification: G30, G32, G38, F34

Suggested Citation

Lin, Chen and Wei, Lai and Zhao, Hui, How Do Board Reforms Affect Debt Financing Costs around the World? (January 16, 2020). Available at SSRN: https://ssrn.com/abstract=3520363 or http://dx.doi.org/10.2139/ssrn.3520363

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Lai Wei (Contact Author)

Lingnan University - Department of Finance and Insurance ( email )

8 Castle Peak Road
Lingnan University
Hong Kong, New Territories
China

Hui Zhao

China-ASEAN Research Institute and Fordham University

East Daxue Road #100
Nanning, Guangxi 530004
China

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