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Corporate governance and the cost of borrowing

Frantz, Pascal 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

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Identification Number: 10.1111/jbfa.12034


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
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Additional Information: © 2013 John Wiley & Sons Ltd
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce > HF5601 Accounting
Sets: Departments > Accounting
Collections > Economists Online
Date Deposited: 02 Aug 2013 14:48
Last Modified: 28 Mar 2014 14:14

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