Title: Corporate boards and the leverage and debt maturity choices

Authors: Jarrad Harford, Kai Li, Xinlei Zhao

Addresses: Foster School of Business, University of Washington, Box 353200, Seattle, WA 98195-3200, USA. ' Sauder School of Business, University of British Columbia, 2053 Main Mall, Vancouver, BC V6T 1Z2, Canada. ' Department of Finance, Kent State University Kent, OH 44242, USA

Abstract: Debt, and in particular, short-term debt have the potential to discipline managers. We examine the role of the board in making financing decisions that provide this discipline. Specifically, given a firm|s characteristics, we predict that stronger boards will force the firm to hold more debt and more short-term debt. Employing a rich dataset of board characteristics and controlling for other aspects of a firm|s corporate governance, we find support for these hypotheses. Our simple measure of director power is a robust and promising measure of internal governance.

Keywords: leverage; debt maturity; board effectiveness; incentive alignment; director power; corporate governance; financing decisions; internal governance.

DOI: 10.1504/IJCG.2008.017648

International Journal of Corporate Governance, 2008 Vol.1 No.1, pp.3 - 27

Published online: 25 Mar 2008 *

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