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Creditor Control Rights and Board Independence
Author(s) -
FERREIRA DANIEL,
FERREIRA MIGUEL A.,
MARIANO BEATRIZ
Publication year - 2018
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12692
Subject(s) - business , corporate governance , creditor , equity (law) , independence (probability theory) , accounting , covenant , financial system , control (management) , finance , economics , law , debt , political science , management , statistics , mathematics
We find that the number of independent directors on corporate boards increases by approximately 24% following financial covenant violations in credit agreements. Most of these new directors have links to creditors. Firms that appoint new directors after violations are more likely to issue new equity, and to decrease payout, operational risk, and CEO cash compensation, than firms without such appointments. We conclude that a firm's board composition, governance, and policies are shaped by current and past credit agreements.