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The effects of financial distress and capital structure on the work effort of outside directors
journal contributionposted on 2010-06-01, 00:00 authored by H I Chou, H Li, Xiangkang YinXiangkang Yin
This paper investigates the conflict of interests between shareholders and debtholders by examining the work effort of outside directors when a company experiences financial distress or has a high financial leverage. We find that at both company level and individual director level: (i) outside directors of a firm with higher financial distress exert less work effort in controlling for financial leverage; (ii) outside directors of a firm with a higher financial leverage work harder controlling for financial distress.