Keywords: debt-equity conflict, debt overhang, asset substitution, banker-directors, bank lending channel, stakeholders
학회소식
[2022년 5차 CAFM2022]Debt-equity Conflicts and Efficiency of Distressed Firms: Evidence from Banker-directors in Japan
작성자 : 관리자
조회수 : 288
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2022-12-20
In Japan, bankers affiliated with a firm's lenders can become directors of the borrower to monitor managerial decisions that may harm the creditors. Exploiting this unique institution, we examine the effect of debt-equity conflicts on firms' investment efficiency and find the following results. First, firms with banker-directors make more debt-friendly decisions, but only when they are financially distressed. Second, banker-directors reduce both underinvestment and overinvestment of distressed firms. Third, the weaker friction also influences lenders' willingness to lend, which further helps resolve the underinvestment problem. Finally, banker-directors of distressed firms may affect their suppliers and customers negatively by paying less to the former and squeezing more cash from the latter. These results suggest that despite the within-firm value creation, the overall welfare implication of the mitigated debt-equity conflict can become ambiguous due to negative spillovers on other stakeholders.
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