To read the full version of this content please select one of the options below:

Creditors' governance, information asymmetry and debt diversification: evidence from India

Nemiraja Jadiyappa (Department of Finance and Accounting, Indian Institute of Management Raipur , Raipur, India)
Garima Sisodia ( Rajagiri Business School , Cochin, India)
Anto Joseph ( Rajagiri College of Social Sciences , Cochin, India)
Santosh Shrivastsava ( Institute of Management Technology Nagpur , Nagpur, India)
Pavana Jyothi (IBS-Hyderabad, A Constituent of the ICFAI Foundation for Higher Education (IFHE), Hyderabad, India)

International Journal of Managerial Finance

ISSN: 1743-9132

Article publication date: 12 June 2020

Issue publication date: 8 March 2021

Downloads
324

Abstract

Purpose

The governing role of bank-appointed directors (BADs) on the boards of non-financial firms has a potential to reduce information asymmetry between the firm and non-bank lenders. This should increase the confidence of other creditors in firm activities, thus performing the certification role. Therefore, the purpose of this paper is to empirically examine the certification role of BADs.

Design/methodology/approach

The authors test their hypotheses by using a panel of Indian non-financial firms. Our approach involves examining whether there is a significant difference in the number of different debt sources, the dispersion of debt among different debt sources, and leverage for BAD and Non_BAD Firms. The authors use univariate analysis and multivariate regression models to test the difference.

Findings

The authors find that firms with BADs on their board have (1) access to a higher number of different debt sources, (2) debt distributed evenly among different sources and (3) a higher debt ratio. Overall, our study provides supporting evidence for the certification role that BADs play on the boards of non-financial firms.

Originality/value

The authors contribute to the literature in two aspects. First, to the best of our knowledge, this is the only study that examines the effect of the governing role of banks on the lending decisions of non-bank lenders. Second, our study is associated with the growing body of the governance literature in the emerging markets context by examining the interaction of financial policies and governance in an institutional framework, which is very different from that of the developed world.

Keywords

Citation

Jadiyappa, N., Sisodia, G., Joseph, A., Shrivastsava, S. and Jyothi, P. (2021), "Creditors' governance, information asymmetry and debt diversification: evidence from India", International Journal of Managerial Finance, Vol. 17 No. 2, pp. 282-302. https://doi.org/10.1108/IJMF-01-2020-0013

Publisher

:

Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited