Click here to download

Corporate governance and information asymmetry between shareholders and lenders: an analysis of Italian listed companies
Author/s: Sabrina Pisano, Luigi Lepore, Rocco Agrifoglio 
Year:  2015 Issue: Language: English 
Pages:  27 Pg. 27-53 FullText PDF:  295 KB
DOI:  10.3280/FR2015-002002
(DOI is like a bar code for intellectual property: to have more infomation:  clicca qui   and here 

This paper analyzes the information asymmetry between owner/manager and lenders. More specifically, the research investigates the role of corporate governance mechanisms in reducing the agency costs of debt. The findings show that lenders perceive higher agency costs of debt if the controlling shareholder owns a percentage of capital greater than 66%. Results also show that the presence of independent directors elected by minority shareholders on the board mitigates the agency conflicts between borrowers and lenders. In the same way, the audit committee independence reduces the agency costs of debt. Moreover, the study shows that when the audit committee chairman coincides with the board chairman banks perceive more risk and, therefore, a bigger asymmetry. This coincidence increases the concentration of power in the hands of just one person and this enhances the likelihood of opportunistic actions by the management that could damage lenders. This means that it is costly for companies to concede to just one person too much influence over the board activities, because it reduces the effectiveness of the monitoring role played by independent directors, increasing the information asymmetry between borrowers and lenders.
Keywords: Agency costs of debt, board of directors, audit committee, ownership concentration

  1. Aggarwal R. and Aung Kyam N. (2009), International variations in transparency and capital structure: evidence from European firms, Journal of International Financial Management and Accounting, 20 (1), pp. 1-34,, DOI: 10.1111/j.1467-646X.2009.01025.x
  2. Anderson R.C., Mansi S.A. and Reeb D.M. (2003), Founding family ownership and the agency cost of debt, Journal of Financial Economics, 68 (2), pp. 263-285,, DOI: 10.1016/S0304-405X(03)00067-9
  3. Anderson R.C., Mansi S.A. and Reeb D.M. (2004), Board characteristics, accounting report integrity, and the cost of debt, Journal of Accounting and Economics, 37 (3), pp. 315-342,, DOI: 10.1016/j.jacceco.2004.01.004
  4. Armstrong C.S., Guay W.R. and Weber J.P. (2010), The role of information and financial reporting in corporate governance and debt contracting, Journal of Accounting and Economics, 50 (2), pp. 179-234,, DOI: 10.1016/j.jacceco.2010.10.001
  5. Ashbaugh-Skaife H., Collins D.W. and LaFond R. (2006), The effects of corporate governance on firms’ credit rating, Journal of Accounting and Economics, 42 (1), pp. 203-243,, DOI: 10.1016/j.jacceco.2006.02.003
  6. Bhojraj S. and Sengupta P. (2003), Effect of corporate governance on bond ratings and yields: the role of institutional investors and the outside directors, The Journal of Business, 76 (3), pp. 455-475,, DOI: 10.1086/344114
  7. Bianchi M. and Bianco M. (2006), Italian corporate governance in the last 15 years: from pyramids to coalitions?, working paper n. 144/2006, ECGI Working Paper Series in Finance.
  8. Bianco M. and Casavola P. (1999), Italian corporate governance: Effects on financial structure and firm performance, European Economic Review, 43 (4), pp. 1057-1069,, DOI: 10.1016/S0014-2921(98)00114-7
  9. Brunello G., Graziano C. and Parigi B. (2000), Ownership or performance: what determines board of directors’ turnover in Italy?, IZA Discussion Paper No. 105, available at SSRN:
  10. Cheung Y.L., Rau P.R. and Stouraitis A. (2006), Tunnelling, propping, and expropriation: Evidence from connected party transactions in Hong Kong, Journal of Financial Economics, 82 (2), pp. 343-386,, DOI: 10.1016/j.jfineco.2004.08.012
  11. Comitato per la Corporate Governance (2006), Codice di Autodisciplina, March.
  12. Comitato per la Corporate Governance (2011), Codice di Autodisciplina, December.
  13. Connelly B.L., Hoskisson R.E., Tihanyi L. and Certo S.T. (2010), Ownership as a Form of Corporate Governance, Journal of Management Studies, 47 (8), pp. 1561-1589,, DOI: 10.1111/j.1467-6486.2010.00929.x
  14. Corbetta G. and Tomaselli S. (1996), Board of directors in Italian family business, Family Business Review, 9 (4), pp. 403-421,, DOI: 10.1111/j.1741-6248.1996.00403.x
  15. Fama E. and Jensen M. (1983), Separation of ownership and control, Journal of Law and Economics, 26, pp. 301-325,, DOI: 10.1086/467037
  16. Fan J. and Wong T.J. (2002), Corporate ownership structure and the informativeness of accounting earnings in East Asia, Journal of Accounting and Economics, 33 (3), pp. 401-425,, DOI: 10.1016/S0165-4101(02)00047-2.
  17. Francis J., LaFond R., Olsson P. and Schipper K. (2005), The market pricing of accruals quality, Journal of Accounting and Economics, 39 (2), pp. 295-327,, DOI: 10.1016/j.jacceco.2004.06.003
  18. Guay W.R. (2008), Conservative financial reporting, debt covenants, and the agency costs of debt, Journal of Accounting and Economics, 45 (2), pp. 175-180,, DOI: 10.1016/j.jacceco.2008.05.001
  19. Hirshleifer D. and Thakor A. (1992), Managerial conservatism, project choice and debt, Review of Financial Studies, 5 (3), pp. 437-470,, DOI: 10.1093/rfs/5.3.437
  20. Iannotta G., Minichilli A. and Zattoni A. (2010), Ownership Structure, Board Composition And Investors’ Protection: Evidence From S&P 500 Firms, working paper n. 07/10, Carefin, Università Bocconi.
  21. Italian Stock Exchange (2008), Format per la relazione sul governo societario e gli assetti proprietari, February.
  22. Jaggi B., Leung S. and Gul F. (2009), Family control, board independence and earnings management: Evidence based on Hong Kong firms, Journal of Accounting Public Policy, 28 (4), pp. 281-300,, DOI: 10.1016/j.jaccpubpol.2009.06.002
  23. Jensen M.C. and Meckling W.H. (1976), Theory of the firm: managerial behavior, agency costs and ownership structure, Journal of financial economics, 3 (4), pp. 305-360,, DOI: 10.1016/0304-405X(76)90026-X
  24. Jensen M.C. (1993), The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems, Journal of Finance, 48 (3), pp. 831-880,, DOI: 10.1111/j.1540-6261.1993.tb04022.x
  25. Jonh K. and Senbet L.W. (1998), Corporate Governance and Board Effectiveness, Journal of Banking & Finance, 22 (4), pp. 371-403,, DOI: 10.1016/S0378-4266(98)00005-3
  26. Kim W.S. and Sorensen E.H. (1986), Evidence on the impact of the agency costs of debt on corporate debt policy, The Journal of Financial and Quantitative Analysis, 21 (2), pp. 131-144,, DOI: 10.2307/2330733
  27. Krippendorf K. (1980), Content Analysis: An Introduction to Its Methodology. (Beverly Hills, CA: Sage publications).
  28. Lim S., Matolcsy Z. and Chow D. (2007), The association between board composition and different types of voluntary disclosure, European Accounting Review, 16 (3), pp. 555-583,, DOI: 10.1080/09638180701507155
  29. Lipton M. and Lorsch, J. (1992), A modest proposal for improved corporate governance, The Business Lawyer, 48 (1), pp. 59-77.
  30. Melis A. (1999), Corporate governance – Un’analisi empirica della realtà italiana in un’ottica europea. (Torino: Giappichelli).
  31. Melis A. (2000), Corporate Governance in Italy, Corporate Governance: An International Review, 8 (4), pp. 347-355,, DOI: 10.1111/1467-8683.00213
  32. Micossi S. (2010), Il punto sugli amministratori indipendenti, Assemblea annuale Nedcommunity Assonime, Milano, April.
  33. Moscariello N. (2011), Mandatory IAS/IFRS adoption and debt contracting in different institutional settings: a comparison between Italy and UK, Paper presented at the 34th Annual Congress of European Accounting Association.
  34. Patelli L. and Prencipe A. (2007), The relationship between voluntary disclosure and independent directors in the presence of a dominant shareholder, European Accounting Review, 16 (1), pp. 5-33,, DOI: 10.1080/09638180701265820
  35. Sánchez-Ballesta J.P. and García-Meca E. (2011), Ownership Structure and the Cost of Debt, European Accounting Review, 20 (2), pp. 389-416,, DOI: 10.1080/09638180903487834
  36. Shleifer A. and Vishny R.W. (1986), Large Shareholder and Corporate Control, Journal of Political Economy, 94, pp. 461-488,, DOI: 10.1086/261385
  37. Shleifer A. and Vishny R.W. (1997), A survey of corporate governance, The Journal of Finance, 52 (2), pp. 737-783,, DOI: 10.1111/j.1540-6261.1997.tb04820.x
  38. Villalonga B. and Amit R. (2006), How do family ownership, control and management affect firm value?, Journal of Financial Economics, 80 (2), pp. 385-417,, DOI: 10.1016/j.jfineco.2004.12.005
  39. Williamson O. (1981), The modern corporation: Origins, evolution, attributes, Journal of Economic Literature, 91, pp. 1537-1568.
  40. Yermack D. (1996), Higher market valuation of companies with a small board of directors, Journal of Financial Economics, 40 (2), pp. 185-211,, DOI: 10.1016/0304-405X(95)00844-5
  41. Zona F. and Zattoni A. (2007), Beyond the black box of demography: board process and task effectiveness within Italian firms, Corporate governance, 15 (5), pp. 852-864,, DOI: 10.1111/j.1467-8683.2007.00606.x

Sabrina Pisano, Luigi Lepore, Rocco Agrifoglio, in "FINANCIAL REPORTING" 2/2015, pp. 27-53, DOI:10.3280/FR2015-002002


FrancoAngeli is a member of Publishers International Linking Association a not for profit orgasnization wich runs the CrossRef service, enabing links to and from online scholarly content