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Friendly Boards and the Cost of Debt.
- Source :
- Journal of Risk & Financial Management; Jul2024, Vol. 17 Issue 7, p291, 17p
- Publication Year :
- 2024
-
Abstract
- For a sample of public bond issues by U.S. firms between 2000 and 2019, sourced from the Securities Data Corporation (SDC) New Issues database, we examine the relationship between CEO-friendly boards and the cost of debt. To explore this relationship, we construct proxies for board friendliness based on social connections sourced from the BoardEx database, classifying a board as friendly if it includes at least one outside director who has a social connection with the CEO. Our regression analysis reveals a negative association between CEO-friendly boards and yield spreads and a positive association between CEO-friendly boards and credit ratings. These effects exist after controlling for firm and bond characteristics based on prior literature. The results are robust to an alternative measure of board friendliness and potential endogeneity. These findings imply that firms with a CEO-friendly board experience a lower cost of bond financing. This supports the argument that effective communication between CEOs and directors contributes to the enhancement of creditor interests. Our results carry a practical implication that firms heavily reliant on debt should actively employ CEO-friendly boards. Despite the burgeoning literature on CEO-friendly boards, there is a lack of research on the relationship between CEO-friendly boards and the cost of debt. Our results fill this gap in the extant literature on CEO-friendly boards. [ABSTRACT FROM AUTHOR]
- Subjects :
- CAPITAL costs
CREDIT spread
CREDIT ratings
BONDS (Finance)
DATABASES
Subjects
Details
- Language :
- English
- ISSN :
- 19118066
- Volume :
- 17
- Issue :
- 7
- Database :
- Complementary Index
- Journal :
- Journal of Risk & Financial Management
- Publication Type :
- Academic Journal
- Accession number :
- 178701114
- Full Text :
- https://doi.org/10.3390/jrfm17070291