Title

Corporate Governance And Capital Structure Dynamics: An Empirical Study

Document Type

Article

Publication Date

Summer 6-1-2015

Publication Title

Journal of Financial Research

Keywords

board independence; financial leverage; corporate structure dynamics

Disciplines

Corporate Finance | Finance and Financial Management

Abstract

Consistent with theoretical predictions, we find that both a higher level of financial leverage and a faster speed of adjustment of leverage toward the shareholders’ desired level are associated with better corporate governance quality as defined by a more independent board featuring CEO–chairman separation and greater presence of outside directors, coupled with larger institutional shareholding. In contrast, managerial incentive compensation on average discourages use of debt or adjustments toward the shareholders’ desired level, consistent with its entrenchment effect. The effect of corporate governance on leverage adjustments is most pronounced when initial leverage is between the manager’s desired level and the shareholders’ desired level where the interests of managers and shareholders conflict.

DOI

10.1111/jfir.12057

Version

Postprint

Volume

38

Issue

2

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