corporate boards and the leverage and debt maturity choices.pdfVIP

Int. J. Corporate Governance, Vol. 1, No. 1, 2008 3 Corporate boards and the leverage and debt maturity choices Jarrad Harford Foster School of Business, University of Washington, Box 353200, Seattle, WA 98195-3200, USA E-mail: jarrad@u.washington.edu Kai Li* Sauder School of Business, University of British Columbia, 2053 Main Mall, Vancouver, BC V6T 1Z2, Canada E-mail: kai.li@sauder.ubc.ca *Corresponding author Xinlei Zhao Department of Finance, Kent State University Kent, OH 44242, USA E-mail: xzhao@kent.edu 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; governance. Reference to this paper should be made as follows: Harford, J., Li, K. and Zhao, X. (2008) ‘Corporate boards and the leverage and debt maturity choices’, Int. J. Corporate Governance, Vol. 1, No. 1, pp.3–27. Biographical notes: Jarrad Harford is the Ma