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...

Full description

Bibliographic Details
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/ http://irep.iium.edu.my/27328/1/CG%26Cov_AAA-FRS2012__28June2012.pdf

id	iium-27328
recordtype	eprints
spelling	iium-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 PeerReviewed 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)
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
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/ http://irep.iium.edu.my/27328/1/CG%26Cov_AAA-FRS2012__28June2012.pdf
first_indexed	2023-09-18T20:40:37Z
last_indexed	2023-09-18T20:40:37Z
_version_	1777409340233220096

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

Similar Items