The effects of corporate governance mechanisms on the financial leverage–profitability relation

Hanh Song Thi Pham and Duy Thanh Nguyen

Management Research Review, 2019, vol. 43, issue 4, 387-409

Abstract: Purpose - This paper aims to investigate the moderating effects of corporate governance mechanisms on the financial leverage–profitability relation in emerging market firms. Design/methodology/approach - The paper examines the impacts by estimating the empirical model in which a firm’s accounting profitability is a dependent variable, while financial leverage, board size, board independence, CEO duality, CEO ownership, state ownership and the interaction variables are predictors. The paper uses the panel data set of 295 listed firms in Vietnam in the period 2011-2015 and two key econometric methods for panel data, namely, the two-stage least square instrumental variable and general moments method. Findings - The paper finds the evidence for the significant and positive effect of board size, board independence and state ownership on the financial leverage–profitability relation. The effect of CEO duality on the financial leverage–profitability relation tends to be negative, and the impact CEO ownership inclines to be positive, although both of them are statistically insignificant. The results are consistent across different estimation methods. Originality/value - This paper is the first investigating the moderating effect of various corporate governance mechanisms on the financial leverage–profitability relationship in emerging market firms.

Keywords: Financial leverage; Emerging markets; Vietnam; State ownership; Board independence; CEO duality; Corporate governance; CEO ownership; Board size; Firm profitability (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:mrrpps:mrr-03-2019-0136

DOI: 10.1108/MRR-03-2019-0136

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