Financial system

Control (management)

Law and economics

Statistics

Creditor

Accounting

Economics

Independence (probability theory)

Business

Corporate governance

Covenant

Mathematics

Management

Political science

Debt

Finance

Equity (law)

Shareholder

The Journal of Finance

ABSTRACT We find that the number of independent directors on corporate boards increases by approximately 24% following financial covenant violations in credit agreements. Most of these new directors have links to creditors. Firms that appoint new directors after violations are more likely to issue new equity, and to decrease payout, operational risk, and CEO cash compensation, than firms without such appointments. We conclude that a firm's board composition, governance, and policies are shaped by current and past credit agreements.

Creditor Control Rights and Board Independence