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Eric Talley UC Berkeley

Explore the nuances of debt holders' governance rights and the comparison between private lenders and independent directors in shaping corporate governance mechanisms. Delve into the intricacies of endogenous governance terms, firm performance, and normative implications.

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Eric Talley UC Berkeley

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  1. Comments on Fred Tung, “LEVERAGE IN THE BOARD ROOM: THE UNSUNG INFLUENCE OF PRIVATE LENDERS IN CORPORATE GOVERNANCE” Eric Talley UC Berkeley

  2. Four Principal Questions/Challenges • Situating the Contribution: How uncharted is the approach of viewing the rights of debt holders (esp. bank debt; others too) qua corporate governance (e.g., Jensen ’86; Welch ’97; Gilson ‘07)? • Situating the Comparison: What’s the most apt locus for comparison of organizational types? • Private Lender vs. Independent Director? • Or, Private Lender vs. Institutional SH? • Governance “Portfolios”: Are SH and Creditor governance mechanisms substitutes? Complements? (e.g., Cremers et al ’06); Effect of inv’t hedging? What about output mkts? Input mkts? • Identification Strategy: Endogeneity of governance terms (e.g., covenants, info. access, incentives, expertise, enforcement) for both SH & Creditors • Problem may be especially pronounced when renegotiation rampant, and where accounting manipulation likely • Acknowledged in parts, but treated as primitives elsewhere

  3. Endogenous Governance Mechanisms Primitives Firm Performance NIE and Debt Holder Governance Normative Implications? Can FT answer? • Institutional Constraints • Default/Imm. Rules/Stds • Legal / Equ. Remedies • Proc / Defendant Diffs • Cap. Structure Position • “Governance” • Capital Structure • CF / Control Rights • Trumping Rights • Covenants • Spec. Investments • Access to Info. • Exec. Comp. • Commitment/Reneg Performance & Outcomes (Earnings, Sales, ROA, ROE, Q, Renegotiation, Violation) • Organizational Constraints • Organizational Task • Initial Distrib of Info. • Distrib of Skills/Capital • Distrib of Barg. Power

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