1. Discussion of Board Quality and the Cost and Covenants Terms of Bank Loans
L. Page Fields, Ronald R. Fraser (Texas A&M University)
Bang Dang Nguyen - Chinese University of Hong Kong

2. Research Questions
Relationship between quality of boards of directors and the cost and covenant terms of bank loans
Important question: private debt equal to two or three times of the new issuance of public debt (Bradley and Roberts (2004))
Show incremental impact of board, after controlling for firm financial characteristics
oard

3. Empirical Results Boards affect cost of loans
Firms with larger, more independent, more experienced boards borrow at lower interests
Boards affect types of loan covenants
Firms with larger, more independent, busier, more diverse, better paid, low CEO ownership boards are less likely to be subjects to financial ratio limitations
Check of causality using 2- and 3- SLS approach

4. Comments and Suggestions (1)
The paper relates proxies for board quality to the cost and covenant terms of bank loans
Proxies for board quality subject to discussions, tend to be extreme values
Long-serving directors can have more experience, but can have less independence, and be more entrenched (Hermalin and Weisbach (1998), Carter and Lorsch (2004))
Benchmark for the paper: 15 years of tenure. Nguyen and Nielsen (2009): over 17 year of tenure, independent directors are bad for firm value
Busy directors: 4 or more seats? Mean? Median? Distribution?
Board gender diversity: only 5% of directors are female (Adams et Ferreira (2008))

5. Comments and Suggestions (2)
Underlying theories are not trivial and channels are not clear
How is superior monitoring translated into better loans terms?
How do board characteristics impact loans terms?
How boards are “mutually” beneficial to both shareholders and lenders: by definition, boards are there to defend shareholder interest first
Can boards have any say, in real world on loans? To which extent?

6. Comments and Suggestions (3)
Empirical results on loan cost
Table V: change in proxies for board quality and governance characteristics
Require longer sample period. Does it make sense for a 3-4 year period?
Table V: the instruments
Time interest earned as instrument. Why?
Board quality index: meaning is not straightforward
Interpretations of results still important

7. Comments and Suggestions (4)
Empirical results on covenant terms
Based also on the same framework
Questions on identifications remain

8. Conclusions I think the paper does have an idea
But we hope to understand how the credit markets work and how they are related to quality of boards
Some more theoretical backgrounds for research questions can be useful
I am looking forward to reading the next version of the paper