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Director interlocks, with their extended resources and shared experiences, have the potential power to go beyond the basic role of providing advice and monitoring the activities of an organization. Interlocked directors can have a cross-cultural role in manipulating corporate choices and strategies in several areas, including capital structure, based on learned behavior in their internal company. Shareholders and creditors are the two main capital providers for a company. However, their risk return horizons are very different, and policies that benefit one group may not be optimal to the other. Interlocks can act as carriers of sub-par practices that affect the behavior of several organizations. Such transactional and relational activities may increase short-term value for equity shareholders, but increase the risk for the creditors. The purpose of this paper is to examine cross-cultural effects of interlocks on corporate strategies that affect this essential agency relationship.

This paper surveys the extant literature on board interlocks, board practices, equity valuation and credit risk to develop a link between such interlocks and creditor protection. Based on a brief survey of the central concepts of governance and the role of directors, this paper then provides various propositions on the role of interlocking directorships and their effect on the shareholder–creditor agency problem.

Director interlocks, through their linked common practices, have the potential to increase or worsen shareholder–creditor conflicts by magnifying strategic practices like short-termism, earnings management or through its effects on chief executive officer compensation. Such cross-cultural effects persist across ownership structures and cultural differences in governance.

The paper is not an empirical study of the conflict. This paper uses a literature review to arrive at propositions that may impact shareholder–creditor conflicts.

Several studies have shown cronyism and the dense corporate network has been a large factor in the financial crisis that affected both shareholders and creditors. As the influence of creditors grows with the current availability, and therefore increase in debt levels, this conflict can be magnified through homophily inherent in interlocks. For an organization to be successful in its role of protecting all stakeholders, especially the two major providers of equity capital, factors that cause conflicts must be taken into account while developing the tenets of governance policies and, on a regular basis, during the strategic planning process within the organization. Regulations affecting interlocks, including governance policies, must therefore take into account such influences.

Board interlocks act as channels of information between companies, creating a social network where processes and polices are shared and implemented as defined by the concept of homophily. Such management actions reduce both the quality of information available to creditors and their monitoring capabilities. This juxtaposition of shareholder and creditor interest can, therefore, be worsened by director interlocks.

Prior literature has not specifically linked director interlocks and their mutual impact on the culture and strategy of linked corporations to the shareholder–creditor conflict.

This paper addresses the following questions: Why do some firms employ multiple debt types? What explains debt heterogeneity? Is the choice of the source of debt a function of corporate governance?

The author's paper is empirical and uses multiple regression analysis.

Firms under weak corporate governance have a higher propensity to use multiple debt types and have a dispersed debt structure. Contrastingly, firms that are well-managed tend to concentrate debt and borrow predominantly from a few creditors. The author also found that while bank debt is negatively associated with debt concentration, market debt is positively associated with debt concentration.

Firms under weak corporate governance have a higher propensity to use multiple debt types and have a dispersed debt structure. Well-managed firms tend to concentrate debt and borrow predominantly from a few creditors. Bank debt is negatively associated with debt concentration and market debt is positively associated with debt concentration.

Policymakers and practitioners need to account not only for changes in the firm’s total debt level but also for changes within the firm’s debt composition. Understanding a manager’s choice of debt structure can incentivize creditors to effectively monitor and use debt concentration as a form of commitment device that transfers some control rights from the manager to creditors.

While a vast body of corporate finance literature examines the conflict between shareholders and management, there is little empirical work on the conflict between creditors and management. In this paper, the author examines how managerial entrenchment affects debt structure. The results provide a comprehensive picture of how corporate governance influences debt choice(s).

The purpose of this study is to examine the effects of non-commercial banking institutions’ simultaneous holdings of equity and debt in the same firm (hereafter, dual holdings) on financial covenants in debt contracts.

By using the DealScan database, this study tests how dual holdings affect the number of financial debt covenants.

This study finds that the presence of dual holders is positively associated with the number of financial covenants in general, suggesting that the use of financial covenants is reduced when the interests between shareholders and creditors are aligned. This study also finds that dual holder participation does not reduce the number of financial covenants in leveraged loans as much as it does in investment-grade loans. Additionally, when a dual holder has a large portion of equity stakes and loan claims in a borrowing firm, the effect of dual holdings on financial covenants is more pronounced.

This study contributes to debt market research by showing that dual holder participation reduces the number of financial covenants in debt contracts.

The purpose of this paper is to show how corporate policy with respect to the seniority structure of debt changes after a merger.

The author uses data on the seniority and other properties of outstanding bonds of acquiring and target firms before mergers and of the combined firm after the merger. The author tests whether a combined firm that has acquired junior debt in the merger attempts to move toward the senior-only structure of the acquiring firm before the merger.

The author finds that acquiring firms do not rapidly move back toward that structure after acquiring senior debt.

The results of this study are consistent with those of many recent studies on capital structure, which find that changes in capital structure tend to persist, and that firms are slow to revert to previous structures aftershocks, such as those that may result from mergers.

The paper suggests that there may be an advantage for firms to sell off acquired junior debt after a merger.

This paper extends previous studies of capital structure to the more detailed level of debt seniority structure.

The focus on excessive corporate leverage as a key factor influencing bank loan delinquency has come into sharp focus in recent times. However, not much analysis has been undertaken on the factors driving corporate distress in emerging economies. Focusing on India as a case study, the purpose of this paper is to investigate the impact of a particular category of corporate debt restructuring (CDR) proposed by the Indian central bank over the last decade in leading an attempt to address bank loan delinquencies, the authors assess the factors influencing the quantum of restructured debt at the corporate level over the time period 2003–2012.

Besides univariate analysis, the authors use logit regression techniques to analyze the factors driving CDR outcomes in India.

The results suggest that firms that successfully exit the debt restructuring process are more profitable and less levered and spend a longer time in such restructuring. Little net equity enters these restructured firms, while there is some evidence of equity stripping, particularly in firms with greater promoter control.

To the best of our knowledge, this is one of the early studies that employ micro-level data to make a comprehensive assessment of the factors driving CDR for a leading emerging economy.

Capital structure decisions rely on a complex array of theoretical foundations and practical considerations. At the managerial level, it is impractical to base decisions purely on theory. While one can develop a perception of an optimal capital structure, the decision is often obscured by practical limitations to the theoretical base. In order to be useful to practicing managers, policies and decision techniques need to be efficiently accomplished and based on available information. This paper seeks to provide that practical framework.

This paper recounts the simple theoretical base for capital structure, highlights some of the problems encountered when applying the theory to reality, and suggests a framework for practical managerial decisions about capital structure. This exposition is especially useful in undergraduate business curricula, in particular for finance majors considering professional management as a career.

While application of traditional capital structure theory is often impractical, numerous tools are available for use by professional managers to make informed decisions about capital structure.

The conclusions from this paper provide a framework for current and prospective professional managers for making appropriate capital structure decisions in their management careers.

Proper managerial techniques and considerations for leverage and capital structure can potentially benefit society through more prudent use of debt, based on the variety of measures presented in this paper.

Topics discussed in this paper have been in development since the 1950s. The contribution of this paper is the creation of a framework for understanding and applying these topics, for pedagogical and management training purposes.

Acting as chief financial officer (CFO), students try to determine how Coleco can fend off creditors. Coleco is in default on its loans and is in a negative equity position.

This paper aims to clarify the effects of introducing depositor preference on resolution costs, probability of default and bank funding costs, allowing for the possibility of collateralized funding.

The importance of conflict among creditors in generating bankruptcy costs is documented. A model of such a conflict is provided, which is then used in analyzing the effects of depositor preference and other forms of asset encumbrance. The model takes into account the reactions of providers of secured and unsecured financing.

Depositor preference and collateralization of borrowing may reduce the cost of settling the conflicts among creditors that arises in case of resolution or bankruptcy. This net benefit, which may be capitalized into the value of the bank rather than affect creditors’ expected returns, should result in lower overall funding costs and thus a lower probability of distress despite increasing encumbrance of the bank’s balance sheet. The benefit is maximized when resolution is initiated early enough for preferred depositors to remain fully protected.

The interaction of asset encumbrance with liquidity risk is not addressed directly.

The issues addressed on the paper are currently the subject of debate by regulators and market participants. There are direct implications for prudential regulation and bank resolution policies.

The theory of conflict resolution is applied to bankruptcy and bank resolution, generating rigorous analysis of an important practical issue.

The social protests on the streets of indebted sovereigns in crises across the Eurozone have made debt restructuring an imperative. Further delay in achieving this expeditiously and equitably significantly exacerbates the social costs of crises from which current and future generations will struggle to recover. This article examines the feasibility of the drastic and widespread debt restructuring needed to resolve the problem in the face of existing private law sanctions that protect individual creditor rights. It relies on an analysis of US policy in the transition to a securitized market and of key sovereign debt cases to reveal the historical contingency of private law protections. It concludes by showing that the effectiveness of private law protections have always been constrained by the overriding imperative to achieve debt sustainability with negotiated and consensual workouts. This can be achieved in the Eurozone with statutory constraints on enforcement action pending the settlement of debt workouts as suggested in a recent proposal.

This study aims to discuss whether a new accounting policy can help enterprises withstand operating risks and whether corporate governance can play a supervisory role. Taiwan took the lead worldwide in allowing companies to distribute cash dividends from capital reserves. Compared with traditional cash dividends distributed from retained earnings, this move was aimed at maintaining the stability of cash dividends and helping listed companies address the risks of temporary downturns. However, the distribution of cash dividends from capital reserves may violate the principle of capital maintenance and damage creditors’ equity. The authors sought to examine whether corporate governance could play a supervisory role.

The present study targeted Taiwanese listed companies and cited data from the Taiwan Economic Journal. The study period was from 2011–2019. The authors tested the hypotheses using the least square method.

The results showed that ultimate controlling shareholders of listed companies can maximize their own interests through ownership arrangements, whereas corporate governance cannot play a supervisory role nor protect creditors’ equity. The findings provide insight on whether, in the development process of corporate governance, appropriate measures are taken to protect creditors’ equity in addition to shareholders’ equity, or achieve a good coordination of interests among all stakeholders.

The ultimate controlling shareholders or directors of a listed company would seek to maximize their own interests, and transfer the operating risks to creditors through the arrangement of dividend policy, thus harming creditors’ equity. However, independent directors cannot play a supervisory role. The authors inferred that corporate governance standards previously focused on the shareholder level or alleviation of the agency problem between controlling shareholders and non-controlling shareholders but ignored creditors’ equity.