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- Title
THE IMPACT OF CORPORATE GOVERNANCE ON CAPITAL STRUCTURE: A NEW PERSPECTIVE.
- Authors
Hermassi, Nadia; Adjaoud, Fodil; Aloui, Chaker
- Abstract
This study investigates the impact of corporate governance quality (measured by corporate governance index, board compensation, compensation policy, shareholder right, and disclosure policy) on capital structure (measured by total debt divided by total debt plus market capitalization) in Canada. Using a sample of firm observations over the period 2002-2011, this study revealed that firms with stronger corporate governance have lower market leverage. Interestingly, this result is the same when the sub-indexes (board composition, shareholders compensation and their rights) are considered separately . Furthermore, it was found that disclosure policy has a positive impact on leverage. This result is new to the literature. We also document that the relationship of market leverage with firm profitability and growth opportunity is negative; and is positive with firm size. These results are consistent with the Pecking Order Theory. This study is relevant since it adds a new piece to the puzzle of capital structure and improves our understanding of how corporate governance and capital structure are linked. It also helps to resurrect the Pecking Order Theory (Myers and Majluf, 1984). Moreover, in an additional analysis, we find a positive relationship between dividend payout and capital structure.
- Subjects
CANADA; CORPORATE governance; PUBLIC debts; CAPITAL structure; PROFITABILITY; ECONOMIC development
- Publication
International Journal of Business & Economics Perspectives, 2017, Vol 12, Issue 1, p76
- ISSN
1931-907X
- Publication type
Article