Document Type

Working Paper

Publication Date



corporate governance, Sarbanes-Oxley Act, board independence, risk-taking, credit condition, leverage, bondholder/shareholder conflict, cost of debt, propensity score


Using the passage of the Sarbanes-Oxley Act and the associated change in listing standards as a natural experiment, we find that while board independence decreases the cost of debt when credit conditions are strong or leverage low, it increases the cost of debt when credit conditions are poor or leverage high. We also document that independent directors set corporate policies that increase firm risk. These results suggest that, acting in the interest of shareholders, independent directors are increasingly costly to bondholders with the intensification of the agency conflict between these two stakeholders.

Library of Congress Subject Headings

Risk-taking (Psychology), Sarbanes-Oxley Act of 2002, Capital costs, Corporate governance, Financial leverage