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

Published online by Cambridge University Press:  12 August 2022

Hui (Zhao) Chiu ,
Chen Lin  and
Lai Wei Open the ORCID record for Lai Wei [Opens in a new window]
Hui (Zhao) Chiu
Affiliation:
Guangxi University China-ASEAN Research Institute, The University of Hong Kong Faculty of Business and Economics, Tsinghua University School of Social Sciences aseanzhao@126.com
Chen Lin
Affiliation:
The University of Hong Kong Faculty of Business and Economics chenlin1@hku.hk
Lai Wei*
Affiliation:
Lingnan University Faculty of Business
*
laiwei2@ln.edu.hk (corresponding author)
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Abstract

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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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 1 , February 2023 , pp. 217 - 249
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We are grateful to Hendrik Bessembinder (the editor) and two anonymous referees for their helpful comments and suggestions. 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). Chiu acknowledges the financial support from the China National Social Science Youth Fund Project (No. 19CJL048).

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