Blockholder board representation and debt contracting

Blair B. Marquardt and Juan Manuel Sanchez

Journal of Banking & Finance, 2022, vol. 142, issue C

Abstract: We examine the impact of blockholder board representation on a borrower's bank loan contract terms and find it is associated with lower spreads and fewer negative covenants. When examining the potential channels behind the relationship, we find that blockholder-directors who take dedicated monitoring roles, as opposed to the short-term or confrontational positions often associated with activist shareholders, drive the overall relationship. The findings, which are robust to alternative model specifications and explanations, suggest that blockholder-directors can serve as substitute monitors to debtholders when their incentives are aligned. The results also highlight the heterogeneity among blockholders who actively influence the management process.

Keywords: Blockholders; Cost of debt; Debt covenants; Shareholder activism; Board composition (search for similar items in EconPapers)
JEL-codes: G23 G32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:142:y:2022:i:c:s0378426622001406

DOI: 10.1016/j.jbankfin.2022.106546

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