Business ties in boardsthe influence of institutional directors on financial policy

Résumé

We propose that the type of business ties between institutional investors and firms is key to understand the corporate financial policy. We find that directors representing pressure sensitive investors (i.e., banks and insurance companies) have a preference for lower financial leverage, while pressure resistant directors (i.e., mutual funds and pension funds) do not seem to have a significant effect. Nevertheless, when analysed separately, bank and insurance firm representative directors show different attitudes: bank representatives in the board increase both the financial leverage and the banking debt, consistent with the resource dependence theory. We also find a sort of risk aversion among directors representing banks, so that the higher the fraction of shares they own, the more the companies refuse both financial leverage and banking debt.