How Do Board Reforms Affect Debt Financing Costs Around the World?

Hui Chiu ZHAO; Chen LIN; Lai WEI

doi:10.1017/S0022109022000801

How Do Board Reforms Affect Debt Financing Costs Around the World?

Hui Chiu ZHAO, Chen LIN, Lai WEI^*

^*Corresponding author for this work

FACULTY OF BUSINESS

Research output: Journal Publications › Journal Article (refereed) › peer-review

Abstract

In this study, we examine the effect of worldwide board reforms on the cost of debt financing. We document an increase of loan spread after a country initiates the reform. The increase is larger among firms that are more exposed to shareholder-debtholder conflicts. The results suggest that board reforms empower shareholders at the cost of debtholders. However, we also find that, while the reform component related to board independence leads to the increase in the cost of debt, the component related to audit committee independence helps decrease the cost.

Original language	English
Pages (from-to)	217-249
Number of pages	33
Journal	Journal of Financial and Quantitative Analysis
Volume	58
Issue number	1
Early online date	12 Aug 2022
DOIs	https://doi.org/10.1017/S0022109022000801
Publication status	Published - 12 Feb 2023

Bibliographical note

The work described in this paper was partially supported by a grant from the Research Grant Council of the Hong Kong Special Administrative Region, China (Project No. T35/710/20R). Zhao would like to thank the financial support from the China National Social Science Youth Fund Project (Nos. 19CJL048).

© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Publisher Copyright:
© 2022 Cambridge University Press. All rights reserved.

Access to Document

10.1017/S0022109022000801Licence: CC BY

Cite this

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title = "How Do Board Reforms Affect Debt Financing Costs Around the World?",

abstract = "In this study, we examine the effect of worldwide board reforms on the cost of debt financing. We document an increase of loan spread after a country initiates the reform. The increase is larger among firms that are more exposed to shareholder-debtholder conflicts. The results suggest that board reforms empower shareholders at the cost of debtholders. However, we also find that, while the reform component related to board independence leads to the increase in the cost of debt, the component related to audit committee independence helps decrease the cost.",

author = "ZHAO, {Hui Chiu} and Chen LIN and Lai WEI",

note = "The work described in this paper was partially supported by a grant from the Research Grant Council of the Hong Kong Special Administrative Region, China (Project No. T35/710/20R). Zhao would like to thank the financial support from the China National Social Science Youth Fund Project (Nos. 19CJL048). {\textcopyright} The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington Publisher Copyright: {\textcopyright} 2022 Cambridge University Press. All rights reserved.",

year = "2023",

month = feb,

day = "12",

doi = "10.1017/S0022109022000801",

language = "English",

volume = "58",

pages = "217--249",

journal = "Journal of Financial and Quantitative Analysis",

issn = "0022-1090",