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Fetching better deals from creditors: Board busyness, agency relationships and the bank cost of debt

Lookup NU author(s): Dr Vu Trinh, Abdullah Al Jughaiman

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This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).


Abstract

In a cross-country setting, we document that busy boards of directors (i.e., outside directors with multiple directorships) enhance a bank's financing capacity by lowering its cost of debt, which is consistent with the signalling quality hypothesis. Our analysis further reveals that this negative association is more pronounced in conventional banks than their Islamic counterparts. Possibly owning to the distinctive governance structure and the complexity of the Islamic business model, which requires closer monitoring, Muslim debtholders might depreciate a busy board of directors as it is likely to associate with lower scrutinising effectiveness. Our results provide a positive counterpoint to the negative relationship that exists between busy directors and firm performance, and contributes to understanding the indispensable role busy boards play in debt financing.


Publication metadata

Author(s): Trinh VQ, Al Jughaiman A, Cao DN

Publication type: Article

Publication status: Published

Journal: International Review of Financial Analysis

Year: 2020

Volume: 69

Pages: 1-14

Print publication date: 01/05/2020

Online publication date: 29/02/2020

Acceptance date: 26/02/2020

Date deposited: 04/06/2020

ISSN (print): 1057-5219

ISSN (electronic): 1873-8079

Publisher: Elsevier

URL: https://doi.org/10.1016/j.irfa.2020.101472

DOI: 10.1016/j.irfa.2020.101472


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