Corporate Governance and determinants of capital structure: empirical evidence from Brazilian markets

Alexandre Di Miceli da Silveira, Fernanda Finotti Cordeiro Perobelli and Lucas Ayres Barreira de Campos Barros

RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), 2008, vol. 12, issue 3, 763-788

Abstract: This study empirically investigates the influence of a firm's Corporate Governance practices [CG] over its capital structure. Governance quality is measured by a broad index proposed in previous research and constructed for a sample of Brazilian publicly traded companies. We explicitly model the possible bidirectional causality between the constructs of interest, because, as suggested by the specialized literature, capital structure can influence the adoption of certain CG practices by the firm. The postulated systems of equations also include various potential determinants of both capital structure and GC quality suggested by prior research. The equations were estimated by the TOBIT, Ordinary Least Squares, and Three-Stages Least Squares methods. Our results show a significant positive influence of CG practices over financial leverage, in particular of those practices related to the dimension ownership structure and board of directors, suggesting that CG can be an important determinant of capital structure. The results are not conclusive, on the other hand, regarding the influence of leverage over the full CG index and over two sub-indices derived from it.

Date: 2008
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