Do busy directors influence the cost of debt? An examination through the lens of takeover vulnerability

We investigate the effects of board busyness on firms' cost of debt by analyzing the relationship through a hostile takeover framework. We initially establish an inverse relationship between board busyness and firms' hostile takeover vulnerability. Next, we test the relationship between board busyness and the cost of debt. Our results suggest that as the level of board busyness increases, the cost of debt decreases. Economically, the cost of debt for firms whose board is comprised of 40% busy directors is about 30 bps lower, compared to those without busy directors. Our results survive extensive robustness checks and provide a positive counterpoint to the negative correlation between board busyness and firm performance.