Frantz, Pascal 
ORCID: 0009-0005-3394-0589 and Instefjord, Norvald
(2013)
Corporate governance and the cost of borrowing.
Journal of Business, Finance and Accounting, 40 (7-8).
pp. 918-948.
ISSN 0306-686X
Abstract
This paper analyzes the theoretical link between governance (defined loosely as the degree of protection offered to outside shareholders), and the cost of borrowing. We find, consistent with empirical evidence, that improvements in governance reduce the likelihood of default. Also, we find that improvements in governance will monotonically increase or reduce the cost of debt, where the sign of the relationship depends on the firm's restructuring cost in default. Finally, we find that the strength of the governance mechanism can influence the incentives to carry out risk shifting.
| Item Type: | Article |
|---|---|
| Official URL: | http://onlinelibrary.wiley.com/journal/10.1111/(IS... |
| Additional Information: | © 2013 John Wiley & Sons Ltd |
| Divisions: | Accounting |
| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HF Commerce > HF5601 Accounting |
| JEL classification: | G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation |
| Date Deposited: | 02 Aug 2013 14:48 |
| Last Modified: | 12 Dec 2024 00:25 |
| URI: | http://eprints.lse.ac.uk/id/eprint/51368 |
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