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CORPORATE BOARDS AND BANK LOAN CONTRACTING
Author(s) -
Francis Bill,
Hasan Iftekhar,
Koetter Michael,
Wu Qiang
Publication year - 2012
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2012.01327.x
Subject(s) - loan , business , collateral , ex ante , participation loan , non conforming loan , accounting , cross collateralization , financial system , non performing loan , audit committee , audit , syndicated loan , finance , economics , macroeconomics
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 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.