Overseas Background Directors and Debt Costs——Evidence from the Mediating Effect of the Advisory and Supervisory Functions

Abstract

Abstract:

Returnee directors have become an important force shaping the corporate governance of Chinese firms. They directly affect board functions and thus affect the creditors' willingness to provide credit. In this paper, based on a hand-collected database of the background information of the directors of firms listed in Shanghai and Shenzhen stock exchanges during the period from 2009 to 2016, we study how the overseas background of directors affects firms' cost of debt financing. Our empirical evidence shows that directors' overseas background lowers the firms' cost of debt financing by optimizing the advisory and supervisory functions of the board. Additional tests show that such effect is more pronounced in regions with strong government intervention and weak legal enforcement, where the returnee directors would be able to play a more important role. We are the first to show economic consequences of returnee directors from the perspective of debt contracting, and our study contributes to the literature that studies how the characteristics of the board of directors affect corporate governance effectiveness.

Key words: overseas background, debt costs, board of directors, mediating effect

Xie Huobao, Ding Longfei, Liao Ke. Overseas Background Directors and Debt Costs——Evidence from the Mediating Effect of the Advisory and Supervisory Functions[J]. , 2019, 31(11): 202-211.

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