Board characteristics, accounting report integrity, and the cost of debt [An article from: Journal of Accounting and Economics]

This digital document is a journal article from Journal of Accounting and Economics, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
Creditor reliance on accounting-based debt covenants suggests that debtors are potentially concerned with board of director characteristics that influence the integrity of financial accounting reports. In a sample of S&P 500 firms, we find that the cost of debt is inversely related to board independence and board size. We also find that fully independent audit committees are associated with a significantly lower cost of debt financing. Similarly, yield spreads are also negatively related to audit committee size and meeting frequency. Overall, these results provide market-based evidence that boards and audit committees are important elements affecting the reliability of financial reports.