Is Short-Term Debt a Substitute or a Complement to Good Governance?
Short-term debt exposes firms to credit supply shocks and liquidity risk. Short-term debt can also reduce potential agency conflicts between managers and shareholders by exposing managers to more frequent monitoring by the market. This paper examin...
| Main Authors: | , , , |
|---|---|
| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/700321569414144805/Is-Short-Term-Debt-a-Substitute-or-a-Complement-to-Good-Governance http://hdl.handle.net/10986/32451 |
| Summary: | Short-term debt exposes firms to credit
supply shocks and liquidity risk. Short-term debt can also
reduce potential agency conflicts between managers and
shareholders by exposing managers to more frequent
monitoring by the market. This paper examines whether
internal monitoring through independent boards and stronger
shareholder protections can substitute for external
monitoring through the use of short-term debt. The analysis
finds that the relationship between debt maturity and
governance depends on shareholder rights in a given country.
In countries with stronger investor protection, governance
and short-term debt act as substitutes. Instrumenting the
institutional environment with legal origin confirms the results. |
|---|