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Eric Talley UC Berkeley

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

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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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