How Do Board Reforms Affect Debt Financing Costs around the World?
57 Pages Posted: 9 Feb 2020 Last revised: 29 Mar 2021
Date Written: January 16, 2020
In this study, we examine the effect of worldwide board reforms on the cost of debt financing. We document an increase of loan spread after a country initiates the reform. The increase is larger among firms that are more exposed to shareholder-debtholder conflicts. The results suggest that board reforms empower shareholders at the cost of debtholders. However, we also find that, while the reform component related to board independence leads to the increase in the cost of debt, the component related to audit committee independence helps decrease the cost.
Keywords: Board Reform, Cost of Debt, Shareholder-debtholder Conflicts
JEL Classification: G30, G32, G38, F34
Suggested Citation: Suggested Citation