Does internal board monitoring affect debt maturity?

Using the Sarbanes–Oxley Act (SOX) as an exogenous shock to board structure, we identify internal monitoring via board independence and estimate its impact on corporate debt maturity. We introduce a triple difference-in-difference approach. Additionally, we use a simultaneous equations model and address that decisions about leverage and debt maturity are simultaneous. We also incorporate new debt issuance in the model to ensure the causality in the relation is from internal monitoring towards the maturity of new debt. The findings provide support for agency theory. As board independence increases, internal monitoring becomes stronger, and good governance substitutes for external control over managers through short-term debt. Subsequently, firms have more long-maturity debt. The results are robust to controlling for other internal monitoring mechanisms, CEO characteristics, financial constraints, cash, bond ratings, yield, and debt seniority. The impact of increased board independence on debt maturity is more significant for conglomerates and cases where there is a greater need for internal control over managers, such as CEO duality, high GIM index, straight debt, less strict covenants, high intangibility, high free cash flow, no majority blockholders, high discretionary accruals, or high real earnings management. In further analyses, we rule out the concern that our results are due to better reporting of internal controls through SOX Section 404 or an increase in auditors’ liability after SOX, rather than increased board independence.