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Corporate Governance and Covenants Restrictiveness in Private Debt Contract

Both corporate governance and covenants separately have been shown to play a role in mitigating agency problems associated with debt. Accordingly, we examine the association between corporate governance and the restrictiveness of covenants on a sample of newly syndicated loans in the U.S. private de...

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Main Authors: Abu Bakar, Intan Suryani, Mather, Paul, George, Tanewski
Format: Monograph
Language:English
Published: Contemporary Accounting Research 2012
Subjects:
HF5601 Accounting. Bookkeeping
HJ Public Finance
Online Access:http://irep.iium.edu.my/27329/1/CAR_Submission_Covenants_Paper_23Oct2012.pdf
http://irep.iium.edu.my/27329/
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spelling my.iium.irep.273292012-12-21T12:15:23Z http://irep.iium.edu.my/27329/ Corporate Governance and Covenants Restrictiveness in Private Debt Contract Abu Bakar, Intan Suryani Mather, Paul George, Tanewski HF5601 Accounting. Bookkeeping HJ Public Finance Both corporate governance and covenants separately have been shown to play a role in mitigating agency problems associated with debt. Accordingly, we examine the association between corporate governance and the restrictiveness of covenants on a sample of newly syndicated loans in the U.S. private debt market. Cross-sectional results support the argument that, ceteris paribus, firms with stronger corporate governance are perceived by debtholders as less likely to engage in ex post opportunism, thereby reducing the need for particularly restrictive covenants. More specifically, the results indicate that both a corporate governance score and board independence are positively and significantly associated with covenant slack. While the results also show that independent directors’ financial expertise and covenant slack are positively related, there is no evidence to suggest 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 into their contracting decisions. Contemporary Accounting Research 2012-10 Monograph REM application/pdf en http://irep.iium.edu.my/27329/1/CAR_Submission_Covenants_Paper_23Oct2012.pdf Abu Bakar, Intan Suryani and Mather, Paul and George, Tanewski (2012) Corporate Governance and Covenants Restrictiveness in Private Debt Contract. Working Paper. Contemporary Accounting Research. (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
George, Tanewski
Corporate Governance and Covenants Restrictiveness in Private Debt Contract
description Both corporate governance and covenants separately have been shown to play a role in mitigating agency problems associated with debt. Accordingly, we examine the association between corporate governance and the restrictiveness of covenants on a sample of newly syndicated loans in the U.S. private debt market. Cross-sectional results support the argument that, ceteris paribus, firms with stronger corporate governance are perceived by debtholders as less likely to engage in ex post opportunism, thereby reducing the need for particularly restrictive covenants. More specifically, the results indicate that both a corporate governance score and board independence are positively and significantly associated with covenant slack. While the results also show that independent directors’ financial expertise and covenant slack are positively related, there is no evidence to suggest 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 into their contracting decisions.
format Monograph
author Abu Bakar, Intan Suryani
Mather, Paul
George, Tanewski
author_facet Abu Bakar, Intan Suryani
Mather, Paul
George, Tanewski
author_sort Abu Bakar, Intan Suryani
title Corporate Governance and Covenants Restrictiveness in Private Debt Contract
title_short Corporate Governance and Covenants Restrictiveness in Private Debt Contract
title_full Corporate Governance and Covenants Restrictiveness in Private Debt Contract
title_fullStr Corporate Governance and Covenants Restrictiveness in Private Debt Contract
title_full_unstemmed Corporate Governance and Covenants Restrictiveness in Private Debt Contract
title_sort corporate governance and covenants restrictiveness in private debt contract
publisher Contemporary Accounting Research
publishDate 2012
url http://irep.iium.edu.my/27329/1/CAR_Submission_Covenants_Paper_23Oct2012.pdf
http://irep.iium.edu.my/27329/
_version_ 1643609315688316928
score 13.211869

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