Board Ties and the Cost of Corporate Debt
We thank seminar participants at Ohio University, Loyola University Maryland, University of Auckland, University of Toledo, University of Windsor, the 2010 Financial Management Association Annual Meeting, and the 2010 CRSP Forum for comments and suggestions. The authors acknowledge the valuable comments provided by an anonymous referee and Raghavendra Rau (Editor) that significantly extended the paper. All errors are our responsibility. Tuugi Chuluun acknowledges financial support from summer research grants from Loyola University Maryland and the Sellinger School of Business and Management. John Puthenpurackal acknowledges financial support from the Beam Research Fellowship awarded by the Lee Business School at UNLV.
We examine the impact of firms’ board ties on bond yield spreads. Prior literature associates board connectedness with improved access to resources due to visibility and reputation arising from greater board capital. Consistent with the board capital hypothesis, we find that better connected firms are associated with greater media coverage and more ties to financial firms. Additionally, greater connectedness is linked with statistically and economically significant lower bond yield spreads, especially for firms with high information asymmetry. Our main result appears robust and includes significant negative (positive) changes in yield spreads to announcements of additions (departures) of highly connected directors.