Topic: External Governance and Debt Structure
Speaker: Sreedhar T. Bharath, Professor of Finance, W.P.
Carey School of Business, Arizona State University
Date: April 6th (Wednesday.)
Time: 2:30-4:00pm
Location: Building
4, Room 101
Language: English
Abstract:
This paper examines how external governance pressure
provided by both the product market and the market for corporate control
affects the type of debt that firms issue. Consistent with a governance
substitution effect, we find that (i) an exogenous increase in governance
pressure from the product market has a significant negative impact on the use of
bank financing over public debt issuance, and (ii) an exogenous decrease in governance
pressure from the takeover market has a significant positive impact on the use
of bank financing. Tests using changes in the strictness of loan covenants
provides corroborative evidence. Also consistent with bank “specialness” in
providing governance, w. We interpret these findings as consistent with the
notion that firms endogenously substitute among alternative governance
mechanisms in devising a governance structure that allows external capital to
be raised at the lowest possible cost and that demand for creditor governance
depends on the relative strength of alternative external governance mechanisms.
About the speaker:
Sreedhar T. Bharath holds the Professor
of Finance and Dean’s Council of 100
Distinguished Scholar at W.P. Carey School of Business, Arizona State University. Prior to joining academics,
he worked for University of Michigan and State Bank of India Capital Markets. He
earned his doctoral degree in Finance from New York Stern School of Business in
2003. Professor Bharath’s research interests include Credit Risk, Bank
Relationships and Corporate Finance. He has articles published in the Journal of Financial Economics, Review of
Financial Studies, and Journal of
Banking and Finance, among others.
