Research Discussion Papers, Bank of Finland
No 14/2012:
Corporate boards and bank loan contracting
Bill Francis ()
, Iftekhar Hasan ()
, Michael Koetter and Qiang Wu
Abstract: We investigate the role of corporate boards in bank loan
contracting. We find that when corporate boards are more independent, both
price and nonprice loan terms (e.g., interest rates, collateral, covenants,
and performance-pricing provisions) are more favorable, and syndicated
loans comprise more lenders. In addition, board size, audit committee
structure, and other board characteristics influence bank loan prices.
However, they do not consistently affect all nonprice loan terms except for
audit committee independence. Our study provides strong evidence that banks
tend to recognize the benefits of board monitoring in mitigating
information risk ex ante and controlling agency risk ex post, and they
reward higher quality boards with more favorable loan contract terms.
Keywords: corporate governance; corporate boards; loan contract terms; (follow links to similar papers)
JEL-Codes: G21; G34; (follow links to similar papers)
49 pages, April 12, 2012
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