Research coauthored by Professor Blair Marquardt has been accepted for publication in the Journal of Banking and Finance.
Her paper, titled “Blockholder Board Representation and Debt Contracting,” examines how debt financing is impacted by large shareholders that serve on company boards.
“Consequently, we find that borrowers who have large shareholders on their boards bear a lower cost of bank debt and fewer covenant restrictions on free cash flows, on average,” explained Marquardt. “The effect is increasing in the relative incentive alignment between the shareholder and lender. Thus, the shareholder-director serves like an extra source of monitoring of management, resulting in less expensive and restrictive borrower costs.”
Looking at the involvement of shareholders in companies’ management processes, and more specifically the impact that they have on debtholders, Marquardt was able to uncover that these important decision-makers are often found to be less risk-seeking than otherwise thought.
“I was surprised by the variation in large shareholders on the board. Early on, I thought this might just be a hedge fund paper. But it quickly became apparent that many other parties – other financial institutions, corporation, and individuals – take on board roles in their invested companies. Moreover, relatively few are interested in ousting the CEO or dramatically changing corporate strategy,” said Marquardt.
Marquardt’s research is based on her dissertation at Texas Tech.
“I believe it’s every PhD student’s dream to see their dissertation in print in a peer-reviewed journal, so I’m delighted to achieve that milestone.”
Widely regarded as one of the top 10 finance journals worldwide, landing a spot in the Journal of Banking and Finance will give Marquardt’s research a greater impact and reach.
