Multinationality and capital structure dynamics: A corporate governance explanation

Daniel Gyimah, Nana Abena Kwansa, Anthony K. Kyiu and Sikochi, Anywhere (Siko)

International Review of Financial Analysis, 2021, vol. 76, issue C

Abstract: 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.

Keywords: Multinationality; Capital structure; Speed of adjustment; Corporate governance (search for similar items in EconPapers)
JEL-codes: F23 G32 G34 G35 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:76:y:2021:i:c:s1057521921000995

DOI: 10.1016/j.irfa.2021.101758

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