Debt Covenants and Corporate Governance

Chava, Sudheer; Fang, Shunlan; Kumar, Praveen; Prabhat, Saumya

doi:10.1146/annurev-financial-110716-032511

Cited by 37 publications

(9 citation statements)

References 63 publications

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“…This result, in Japan, seems to indicate a substitution effect between control by debt and control by shareholders and the board of directors. This result is consistent with several studies that support the hypothesis that the use of debt and the governance structure are two substitutable control mechanisms (Richardson et al 2014;Chava et al 2019). This divergence with the British context is indeed linked to the specificity of the Japanese banking context, which is based more on debt.…”

Section: Discussion Of Findingssupporting

confidence: 91%

A Comparison of Corporate Governance and Tax Avoidance of UK and Japanese Firms

Salhi

Jabr

Jarboui

2020

CER

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The present study was designed to determine the relationship between corporate governance and tax avoidance in an international setting. Financial and governance data sourced from the Datastream database for a sample of Japanese and UK firms between 2012 and 2017 are used. First, we examine the direct effect of several corporate governance mechanisms on tax avoidance. Second, we divide the full sample into two groups (common law and code law legal system) to explore the relationship between law, corporate governance, and tax avoidance. We use both univariate and feasible generalized least square (FGLS) regression methods to examine our hypotheses. This study finds that the board size, independent directors, and the presence of women on boards of directors reduce the likelihood of tax avoidance. However, we find an insignificant association between ownership concentration and tax avoidance. Second, it also finds that firms in countries with higher country-level governance engage in less tax avoidance. The results also suggest that the role of corporate governance is more pronounced for firms operating in common law countries than those in code law countries. This manuscript is one of the few studies that examine the relationship between corporate governance and tax avoidance in an international setting with different legal and institutional environment. This relationship differs across the two countries. This paper clearly identifies implications for research, practice, and society. It documents that when a country implements a good system of governance, which targets improving transparency and accountability, it will lead to less corporate tax avoidance.

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Section: Discussion Of Findingssupporting

confidence: 91%

A Comparison of Corporate Governance and Tax Avoidance of UK and Japanese Firms

Salhi

Jabr

Jarboui

2020

CER

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“…This reduced risk-taking translates into lower interest rates on debt and less restrictive covenants generally. Chava et al (2020) review the recent theoretical and empirical literature on debt covenants with an emphasis on creditor governance following covenant violations and its influence on major borrower policies. They also explore key trade-offs in covenant design.…”

Section: Survey Of Board Of Directors and Ceo Incentivesmentioning

confidence: 99%

A Survey of Recent Evidence on Boards of Directors and CEO Incentives

Masulis

2020

Asia-Pac J of Fin Stud

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This article surveys the recent literature on boards of directors and the interplay between director incentives and CEO incentives. The primary focus is on how the incentives and other characteristics of directors, boards, and CEOs interact to affect firm performance. The article reviews the recent evidence documenting a causal relationship between board independence and measures of firm performance. It also discusses the major limitations of the current measure of director independence. Finally, the article highlights how board independence provides strong incentives for CEOs to create firm value and examines the recent evidence on what other director characteristics improve board effectiveness.

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“…As cláusulas restritivas financeiras representam uma parte importante dos contratos de dívida e são em geral baseadas nas informações contábeis dos devedores, sendo geralmente expressas como índices contábeis que possuem faixas definidas previamente nos contratos (Demiroglu & James, 2010). Tais cláusulas impõe restrições diretas às atividades financeiras e de investimento dos devedores, o que serve como mecanismo que limita as ações discricionárias dos gestores e protegem os investidores no que tange à continuidade operacional e capacidade de pagamento de longo prazo das empresas credoras (Chava, Fang, Kumar & Prabhat, 2019). Como exemplos de cláusulas restritivas financeiras podemos citar os covenants de capital, os quais controlam os conflitos de agência impondo restrições à estrutura de capital; e os covenants de performance, que acompanham o desempenho financeiro e operacional das companhias (Christensen & Nikolaev, 2012).…”

Section: Covenants Financeirosunclassified

Níveis diferenciados de governança corporativa e a probabilidade de violação dos covenants financeiros

Oliveira

Monte-mor

2020

Rev. contab. organ.

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A governança corporativa e os covenants financeiros exercem papéis complementares no monitoramento das companhias na medida em que reduzem os conflitos de interesse entre as partes envolvidas durante a confecção de contratos de dívida. Esta pesquisa amplia essa discussão ao analisar se as companhias brasileiras de capital aberto listadas nos níveis diferenciados de governança corporativa da B3 apresentam menor probabilidade de violarem os covenants financeiros em uma análise ex-post à firmação dos contratos. A amostra abrangeu firmas brasileiras não financeiras de capital aberto no período de 2010 a 2018, totalizando 1.310 observações em painel desbalanceado para 206 empresas. Os dados foram obtidos junto ao Economatica, site da B³ e construção de base própria a partir de informações de covenants constantes nas notas explicativas das respectivas firmas. Para apuração e análise dos resultados, foi realizado teste de média T Student e análise de regressão logística com efeito fixo de ano. Os resultados apresentam evidências de que as companhias listadas nos níveis diferenciados de governança corporativa da B³ apresentam menor probabilidade de violarem os covenants financeiros do que as demais companhias não listadas nos respectivos níveis. Tal evidência sugere que os níveis da B³ podem ser usados como proxy de governança em contextos contratuais em que existem conflitos de interesses entre as partes envolvidas.

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Debt Covenants and Corporate Governance

Cited by 37 publications

References 63 publications

A Comparison of Corporate Governance and Tax Avoidance of UK and Japanese Firms

A Comparison of Corporate Governance and Tax Avoidance of UK and Japanese Firms

A Survey of Recent Evidence on Boards of Directors and CEO Incentives

Níveis diferenciados de governança corporativa e a probabilidade de violação dos covenants financeiros

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