Corporate Boards and the Leverage and Debt Maturity Choices

Harford, Jarrad; Li, Kai; Zhao, Xinlei Shelly

doi:10.2139/ssrn.891300

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Corporate Boards and the Leverage and Debt Maturity Choices

36 Pages Posted: 16 Mar 2006

See all articles by Jarrad Harford

Jarrad Harford

University of Washington; European Corporate Governance Institute (ECGI)

University of British Columbia (UBC) - Sauder School of Business; Asian Bureau of Finance and Economic Research (ABFER); China Academy of Financial Research (CAFR); European Corporate Governance Institute (ECGI); Canadian Sustainable Finance Network (CSFN)

Xinlei Shelly Zhao

Government of the United States of America - Office of the Comptroller of the Currency (OCC) - Risk Analysis Division

Date Written: February 2007

Abstract

Debt, and in particular, short-term debt have the potential to discipline managers. We examine the role of the board in making financing decisions that provide this discipline. Specifically, given a firm's characteristics, we predict that stronger boards will force the firm to hold more debt and more short-term debt. Employing a rich dataset of board characteristics and controlling for other aspects of a firm's corporate governance, we find support for these hypotheses. Our simple measure of director power is a robust and promising measure of internal governance.

Keywords: leverage, debt maturity, board effectiveness, incentive alignment, director power, governance

JEL Classification: G32, G34

Suggested Citation: Suggested Citation

Harford, Jarrad and Li, Kai and Zhao, Xinlei, Corporate Boards and the Leverage and Debt Maturity Choices (February 2007). Available at SSRN: https://ssrn.com/abstract=891300 or http://dx.doi.org/10.2139/ssrn.891300