Maclean Gaulin is a fifth year Ph.D. student in accounting at the Jesse H. Jones Graduate School of Business. His background is in Electrical Engineering where he worked in the industry for four years before joining the Ph.D. program at Rice University. His research interests include corporate disclosure and information dissemination research.
Working Paper: 2016-03-31
This paper shows that lenders can influence firms’ governance outside payment and technical default states by exerting ex-ante control over managerial turnover via retention and selection decisions. Examining private loan agreements, we find 8.5% of firms have change of management restriction (CMR) clauses. CEO turnover analysis suggests CMRs are binding. The inalienability of human capital motivates their presence. We also show that CMRs provide a way to contract on soft information and retain management with creditor-friendly style. Finally, CMRs are associated with lower yields, indicating they are in place to protect lenders, rather than to entrench management.