Board Characteristics, Accounting Report Integrity, and the Cost of Debt
Posted: 16 Apr 2004
Creditor reliance on accounting-based debt covenants suggests that debtors are potentially concerned with board of director characteristics that influence the integrity of financial accounting reports. In a sample of S&P 500 firms, we find that the cost of debt is inversely related to board independence and board size. We also find that fully independent audit committees are associated with a significantly lower cost of debt financing. Similarly, yield spreads are also negatively related to audit committee size and meeting frequency. Overall, these results provide market-based evidence that boards and audit committees are important elements affecting the reliability of financial reports.
Keywords: Audit committee composition, board composition, corporate governance, financial statements, accounting information
JEL Classification: M41, M49, K22, G32, G34
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