Past literature has well documented the effect of board networks on corporate investments, governance and managerial compensation. Using a network of 9,393 directors in 985 public US-based firms, I find that cost of debt increases in board interconnectedness. High information flow through directorship interlocks increases debt holders’ monitoring costs on firms with more central boards. In particular, shocks in R&D investments and capital expenditures, M&A activity, change of operating segments and analysts’ forecast error are positively related to board centrality. In line with the monitoring costs hypothesis, higher information flow further decreases accounting quality and impedes efficient private information exchange in lending transactions. Overall, the results suggest that networks’ information asymmetry is a critical component in debt pricing.
Using conference calls transcripts, we measure the time horizon of corporate communication and planning. We show that firms with more short-term focus have a more short-term oriented investor base. Moreover, we find that more short-term oriented firms have higher stock price volatility, and that this effect is mitigated for firms with more long-term investors. We also find that short-term oriented firms have higher equity betas and as a result higher cost of capital. However, this result is not mitigated by the presence of long-term investors, consistent with these investors requiring an additional risk premium for holding the stock of firms with a short-term horizon. Overall, our evidence suggests that capital market short-termism is associated with greater risk and thus affects resource allocation.
Using a sample of secured syndicated loans, I explore the role of intangible assets in reducing financing frictions in credit markets. While the predominant managerial and scholarly perspective suggests that intangible assets are not sufficient collateral, I find that eleven percent of U.S.-originated secured loans include intangible assets as loan collateral, and the collateralization of intangibles has significantly increased over the last several years. I hypothesize and find that intangibles redeployability and borrower reputation are positively related to the probability of using intangibles as loan collateral. I further hypothesize and find that collateralizing intangibles has significantly increased the supply of credit to firms. Moreover, loans secured by intangibles are of similar quality as loans secured by tangibles. Overall, the results suggest that intangible assets increase firm value not only in equity markets, but also in credit markets by alleviating financing frictions.