Discussion paper

DP11870 Creditor Control Rights and Board Independence

We find that the number of independent directors on corporate boards increases by approximately 24% following nancial covenant violations in credit agreements. Most of these new directors are linked to creditors. Firms with stronger lending relationships with their creditors appoint more new directors in response to covenant violations than firms without such relationships. Moreover, fi rms that appoint new directors after violations are more likely to issue new equity and decrease CEO cash compensation than fi rms without such appointments. We conclude that a fi rm's board composition, governance, and policies are shaped by current and past credit agreements.


Ferreira, D, M Ferreira and B Mariano (2017), ‘DP11870 Creditor Control Rights and Board Independence‘, CEPR Discussion Paper No. 11870. CEPR Press, Paris & London. https://cepr.org/publications/dp11870