Shareholder governance, bondholder governance, and managerial risk-taking
We examine the relation between the overall corporate governance structure and managerial risk-taking behavior. We find that the overall governance structure has a significant impact on how managers make decisions on investment policy: strong bondholder governance motivates more low-risk investments such as capital expenditure and lower high-risk investments such as R&D expenditures, whereas weak shareholder governance (entrenched managers) leads to more R&D expenditures. Moreover, we find that the effects of governance on investment policy differ significantly between speculative and investment-grade firms. For speculative firms, strong bondholder or shareholder governance leads to more capital expenditures and low R&D investments. For investment-grade firms, strong bondholder or shareholder governance leads to low capital expenditures and an insignificant impact on R&D investments. Furthermore, financing and investment covenants exhibit strong binding power to deter risky investments. Finally, a more dependent (or a less independent) board is associated with low capital expenditures and high R&D investments.
Year of publication: |
2011
|
---|---|
Authors: | King, Tao-Hsien Dolly ; Wen, Min-Ming |
Published in: |
Journal of Banking & Finance. - Elsevier, ISSN 0378-4266. - Vol. 35.2011, 3, p. 512-531
|
Publisher: |
Elsevier |
Keywords: | Corporate governance Bondholder governance Managerial risk-taking |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Do joint ventures and strategic alliances create value for bondholders?
Chen, Jun, (2015)
-
Non-executive ownership and private loan pricing
Chen, Jun, (2020)
-
Shareholder governance, bondholder governance, and managerial risk-taking
King, Tao-Hsien Dolly, (2011)
- More ...