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The impact of corporate governance on the restrictiveness of covenants in private debt contract

We examine the association between corporate governance and the restrictiveness of covenants used in U.S. private debt contracts. Both corporate governance and covenants have been shown to play a role in mitigating agency problems associated with debt, hence a relationship is expected between these...

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Main Authors: Abu Bakar, Intan Suryani, Mather, Paul, Tanewski, George
Format: Conference or Workshop Item
Language:English
Published: 2012
Subjects:
HF5601 Accounting. Bookkeeping
HJ Public Finance
Online Access:http://irep.iium.edu.my/27328/1/CG%26Cov_AAA-FRS2012__28June2012.pdf
http://irep.iium.edu.my/27328/
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spelling my.iium.irep.273282012-12-29T02:53:01Z http://irep.iium.edu.my/27328/ The impact of corporate governance on the restrictiveness of covenants in private debt contract Abu Bakar, Intan Suryani Mather, Paul Tanewski, George HF5601 Accounting. Bookkeeping HJ Public Finance We examine the association between corporate governance and the restrictiveness of covenants used in U.S. private debt contracts. Both corporate governance and covenants have been shown to play a role in mitigating agency problems associated with debt, hence a relationship is expected between these two monitoring mechanisms. Accordingly we argue that, ceteris paribus, firms with stronger corporate governance will be perceived by debtholders to be less likely to engage in ex-post opportunism thereby reducing the need to use particularly restrictive covenants. Our cross-sectional analysis on a sample of new syndicated loans in the U.S private debt market indicates that both a corporate governance score and board independence are positively and significantly associated with covenant slack. Similarly, we find that independent directors’ financial expertise and covenants slack are positively related, but we find no evidence that slack is associated with ‘busy’ directors or CEO duality. Overall, the empirical evidence supports the hypothesis that debtholders perceive aspects of corporate governance to be beneficial and factor them in to their contracting decisions. 2012-06 Conference or Workshop Item REM application/pdf en http://irep.iium.edu.my/27328/1/CG%26Cov_AAA-FRS2012__28June2012.pdf Abu Bakar, Intan Suryani and Mather, Paul and Tanewski, George (2012) The impact of corporate governance on the restrictiveness of covenants in private debt contract. In: 'Seeds of Innovation' 2012 American Accounting Association (AAA) Annual Meeting & Conference , 4-8 August 2012, Washington, DC, United States of America. (Unpublished)
institution Universiti Islam Antarabangsa Malaysia
building IIUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider International Islamic University Malaysia
content_source IIUM Repository (IREP)
url_provider http://irep.iium.edu.my/
language English
topic HF5601 Accounting. Bookkeeping
HJ Public Finance
spellingShingle HF5601 Accounting. Bookkeeping
HJ Public Finance
Abu Bakar, Intan Suryani
Mather, Paul
Tanewski, George
The impact of corporate governance on the restrictiveness of covenants in private debt contract
description We examine the association between corporate governance and the restrictiveness of covenants used in U.S. private debt contracts. Both corporate governance and covenants have been shown to play a role in mitigating agency problems associated with debt, hence a relationship is expected between these two monitoring mechanisms. Accordingly we argue that, ceteris paribus, firms with stronger corporate governance will be perceived by debtholders to be less likely to engage in ex-post opportunism thereby reducing the need to use particularly restrictive covenants. Our cross-sectional analysis on a sample of new syndicated loans in the U.S private debt market indicates that both a corporate governance score and board independence are positively and significantly associated with covenant slack. Similarly, we find that independent directors’ financial expertise and covenants slack are positively related, but we find no evidence that slack is associated with ‘busy’ directors or CEO duality. Overall, the empirical evidence supports the hypothesis that debtholders perceive aspects of corporate governance to be beneficial and factor them in to their contracting decisions.
format Conference or Workshop Item
author Abu Bakar, Intan Suryani
Mather, Paul
Tanewski, George
author_facet Abu Bakar, Intan Suryani
Mather, Paul
Tanewski, George
author_sort Abu Bakar, Intan Suryani
title The impact of corporate governance on the restrictiveness of covenants in private debt contract
title_short The impact of corporate governance on the restrictiveness of covenants in private debt contract
title_full The impact of corporate governance on the restrictiveness of covenants in private debt contract
title_fullStr The impact of corporate governance on the restrictiveness of covenants in private debt contract
title_full_unstemmed The impact of corporate governance on the restrictiveness of covenants in private debt contract
title_sort impact of corporate governance on the restrictiveness of covenants in private debt contract
publishDate 2012
url http://irep.iium.edu.my/27328/1/CG%26Cov_AAA-FRS2012__28June2012.pdf
http://irep.iium.edu.my/27328/
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score 13.211869

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