Monitoring By Affiliated Bankers on Board of Directors: Evidence from Corporate Financing Outcomes

69 Pages Posted: 21 Mar 2007

Date Written: November 15, 2006

Abstract

This paper investigates whether bank representation on corporate boards facilitates debt finance, using a hand-collected dataset on the boards of directors of large non-financial companies. The findings show that the presence of an executive from a bank that has an outstanding lending relationship with the company (i) increases the amount of debt in a company's capital structure via an increase in private debt, (ii) decreases the sensitivity of debt finance to the amount of tangible assets that a company holds, (iii) decreases the cost of borrowing, and (iv) reduces the covenants included in debt contracts. The main contribution of the paper to the extant literature is to present the first evidence for the banker-director, whose bank has a loan outstanding, performing a monitoring function on that company's board of directors.

Keywords: Banking Relationships, Board of Directors

JEL Classification: G21, G32, G34

Suggested Citation

Sisli Ciamarra, Elif, Monitoring By Affiliated Bankers on Board of Directors: Evidence from Corporate Financing Outcomes (November 15, 2006). Available at SSRN: https://ssrn.com/abstract=973973 or http://dx.doi.org/10.2139/ssrn.973973

Elif Sisli Ciamarra (Contact Author)

Stonehill College ( email )

259 Duffy
Easton, MA 02357
United States

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