Board characteristics, accounting report integrity, and the cost of debt

Board characteristics, accounting report integrity, and the cost of debt Creditor reliance on accounting-based debt covenants suggests that debtors are potentially concerned with board of director characteristics that influence the integrity of financial accounting reports. In a sample of S&P 500 firms, we find that the cost of debt is inversely related to board independence and board size. We also find that fully independent audit committees are associated with a significantly lower cost of debt financing. Similarly, yield spreads are also negatively related to audit committee size and meeting frequency. Overall, these results provide market-based evidence that boards and audit committees are important elements affecting the reliability of financial reports. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Board characteristics, accounting report integrity, and the cost of debt

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Publisher
Elsevier
Copyright
Copyright © 2004 Elsevier B.V.
ISSN
0165-4101
D.O.I.
10.1016/j.jacceco.2004.01.004
Publisher site
See Article on Publisher Site

Abstract

Creditor reliance on accounting-based debt covenants suggests that debtors are potentially concerned with board of director characteristics that influence the integrity of financial accounting reports. In a sample of S&P 500 firms, we find that the cost of debt is inversely related to board independence and board size. We also find that fully independent audit committees are associated with a significantly lower cost of debt financing. Similarly, yield spreads are also negatively related to audit committee size and meeting frequency. Overall, these results provide market-based evidence that boards and audit committees are important elements affecting the reliability of financial reports.

Journal

Journal of Accounting and EconomicsElsevier

Published: Sep 1, 2004

References

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