TY - JOUR
T1 - Multinationality and capital structure dynamics
T2 - A corporate governance explanation
AU - Gyimah, Daniel
AU - Kwansa, Nana Abena
AU - Kyiu, Anthony K.
AU - Sikochi, Anywhere (Siko)
N1 - Funding Information:
We thank Brian Lucey (editor) and an anonymous reviewer for useful comments. We also thank seminar participants at the University of Aberdeen, Durham University, and Heriot-Watt University. We thank the University of Aberdeen , Durham University , Heriot-Watt University , and Harvard Business School for financial support. All errors are our own.
Publisher Copyright:
© 2021 Elsevier Inc.
PY - 2021/7
Y1 - 2021/7
N2 - This paper examines the impact of corporate governance on capital structure dynamics. Using ordinary least squares regressions on 17,496 firm-year observations for 2,294 US multinational companies (MNCs) over the period 1990–2018, we find that MNCs with strong corporate governance use more debt than those with weak governance. Furthermore, strong corporate governance is associated with a faster speed of adjustment to capital structure. This relationship is more pronounced for MNCs than domestic companies, particularly for overlevered firms. We also use the two-part zero-inflated fractional regression model, instrumental variable, and structural equation model estimations to deal with any endogeneity concerns associated with the explanatory variables. Overall, our findings, which withstand a battery of robustness checks, suggest that improvements in corporate governance reduce the costs of monitoring for bondholders, resulting in increased debt financing.
AB - This paper examines the impact of corporate governance on capital structure dynamics. Using ordinary least squares regressions on 17,496 firm-year observations for 2,294 US multinational companies (MNCs) over the period 1990–2018, we find that MNCs with strong corporate governance use more debt than those with weak governance. Furthermore, strong corporate governance is associated with a faster speed of adjustment to capital structure. This relationship is more pronounced for MNCs than domestic companies, particularly for overlevered firms. We also use the two-part zero-inflated fractional regression model, instrumental variable, and structural equation model estimations to deal with any endogeneity concerns associated with the explanatory variables. Overall, our findings, which withstand a battery of robustness checks, suggest that improvements in corporate governance reduce the costs of monitoring for bondholders, resulting in increased debt financing.
KW - Capital structure
KW - Corporate governance
KW - Multinationality
KW - Speed of adjustment
UR - http://www.scopus.com/inward/record.url?scp=85104319495&partnerID=8YFLogxK
U2 - 10.1016/j.irfa.2021.101758
DO - 10.1016/j.irfa.2021.101758
M3 - Article
AN - SCOPUS:85104319495
SN - 1057-5219
VL - 76
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
M1 - 101758
ER -