Board reforms and debt choice

Hamdi Ben-Nasr, Sabri Boubaker and Syrine Sassi
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Hamdi Ben-Nasr: Qatar University
Syrine Sassi: PSB - Paris School of Business - HESAM - HESAM Université - Communauté d'universités et d'établissements Hautes écoles Sorbonne Arts et métiers université

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Abstract: In this study, we examine the impact of board reforms on the choice between bank and public debt. Using a large sample of firm-year observations from 29 countries and a difference-in-difference setting, we find that major board reforms lead to a decrease in bank debt ratio, particularly in companies where bank debt is used for monitoring purposes, suggesting that bank debt and board reforms are substitutes for monitoring managers' actions. We also find that board reforms' adoption is associated with a facilitated access to alternative financing sources with better terms than bank debt. In an additional analysis, we show that the decrease in bank debt ratio is stronger for firms with higher information opacity and those in countries with strong institutional environment. More importantly, we provide evidence that the decrease in bank debt post-reform increases firm value, indicating that the substitution between bank monitoring and board monitoring is a value-enhancing decision. Taken collectively, we conclude that the need for bank monitoring is endogenously determined by the strength of alternative governance mechanisms (i.e. board governance).

Keywords: Board reforms; Bank debt; Public debt; Debt choice (search for similar items in EconPapers)
Date: 2021-06-30
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Citations: View citations in EconPapers (5)

Published in Journal of Corporate Finance, 2021, 69, pp.102009. ⟨10.1016/j.jcorpfin.2021.102009⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04455596

DOI: 10.1016/j.jcorpfin.2021.102009

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