Board Connections and Debt Structure in Private Firms
39 Pages Posted: 12 Aug 2016 Last revised: 15 Jul 2019
Date Written: July 14, 2019
We investigate the effect of board connections on the debt structure of private firms. Using a comprehensive panel data set from Italy, our empirical evidence indicates that independent directors who sit on multiple boards facilitate firms’ access to external debt, mostly in the form of trade debt. This result is largely driven by family firms, which typically display greater informational opaqueness and thus have more to gain from a mechanism, such as board connections, that ameliorates information asymmetries. Exploiting geographic and temporal variations in credit supply, we find that board connections improve the ability of firms to withstand funding shortages. Overall, our findings are consistent with the view that independent directors sitting on multiple boards act as providers of information and resources along the supply chain.
Keywords: private firms, boards, debt, independent directors, board connections
JEL Classification: G32, G34
Suggested Citation: Suggested Citation