Article | Review of Financial Studies | January 2009

Bank Debt and Corporate Governance

by Victoria Ivashina, Vinay Nair, Anthony Saunders, Nadia Massoud and Roger Stover

Abstract

In this paper, we investigate the disciplining role of banks and bank debt in the market for corporate control. We find that relationship bank lending intensity and bank client network have positive effects on the probability of a borrowing firm becoming a target. This effect is enhanced in cases where the target and acquirer have a relationship with the same bank. Moreover, we utilize an experiment to show that the effects of relationship bank lending intensity on takeover probability are not driven by endogeneity. Finally, we also investigate reasons motivating a bank's informational role in the market for corporate control.

Keywords: Corporate Governance; Borrowing and Debt; Banks and Banking; Business and Stakeholder Relations; Governance Controls; Managerial Roles;

Citation:

Ivashina, Victoria, Vinay Nair, Anthony Saunders, Nadia Massoud, and Roger Stover. "Bank Debt and Corporate Governance." Review of Financial Studies 22, no. 1 (January 2009): 41–77.