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Corporate Governance and Loan-Syndicate Structure

Published online by Cambridge University Press:  16 September 2020

Sreedhar T. Bharath*
Affiliation:
Arizona State University Carey School of Business
Sandeep Dahiya
Affiliation:
Georgetown University McDonough School of [email protected]
Issam Hallak
Affiliation:
KU Leuven Department of Accounting, Finance & Insurance [email protected]
*
[email protected] (corresponding author)

Abstract

Firms with greater shareholder rights have a greater risk-shifting incentive, requiring more lender monitoring. Thus, a reduction in shareholder rights implies more diffused (less monitoring-intensive) loan syndicates. Using the passage of U.S. second-generation antitakeover laws as an exogenous shock that reduces shareholder rights as a natural experiment, we find that loan syndicates become significantly more diffuse after the passage of these laws. These results are confirmed in a large sample of bank loans made during the 1990–2007 period when the loan syndicate market matured. Our results show how corporate governance causally affects financial contracting and creditor control in firms.

Type
Research Article
Copyright
© The Author(s), 2020. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We thank an anonymous referee, Paul Malatesta (the editor), and seminar participants and discussants at Arizona State University, New York University, Stonybrook University, the Federal Deposit Insurance Corporation (FDIC), the 2018 Chicago Financial Institutions Conference, and the European Finance Association meetings. Bharath acknowledges the support of the Richard Kraemer professorship provided by the Arizona State University W. P. Carey School of Business. Dahiya acknowledges the support of the Stallkamp faculty fellowship grant provided by the Georgetown University McDonough School of Business.

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