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Capital Structure, Shareholder Rights, And Corporate Governance

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  • Pornsit Jiraporn
  • Kimberly C. Gleason

Abstract

We show how capital structure is influenced by the strength of shareholder rights. Our empirical evidence shows an inverse relation between leverage and shareholder rights, suggesting that firms adopt higher debt ratios where shareholder rights are more restricted. This is consistent with agency theory, which predicts that leverage helps alleviate agency problems. This negative relation, however, is not found in regulated firms (i.e., utilities). We contend that this is because regulation already helps alleviate agency conflicts and, hence, mitigates the role of leverage in controlling agency costs. 2007 The Southern Finance Association and the Southwestern Finance Association.

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Bibliographic Info

Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

Volume (Year): 30 (2007)
Issue (Month): 1 ()
Pages: 21-33

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Handle: RePEc:bla:jfnres:v:30:y:2007:i:1:p:21-33

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Web page: http://www.southwesternfinance.org/
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Cited by:
  1. Chinmoy Ghosh & Erasmo Giambona & John Harding & C. Sirmans, 2011. "How Entrenchment, Incentives and Governance Influence REIT Capital Structure," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 43(1), pages 39-72, July.
  2. Jiraporn, Pornsit & Kim, Young Sang & Davidson III, Wallace N., 2008. "Multiple directorships and corporate diversification," Journal of Empirical Finance, Elsevier, Elsevier, vol. 15(3), pages 418-435, June.
  3. Jiraporn, Pornsit & Kim, Jang-Chul & Kim, Young Sang & Kitsabunnarat, Pattanaporn, 2012. "Capital structure and corporate governance quality: Evidence from the Institutional Shareholder Services (ISS)," International Review of Economics & Finance, Elsevier, Elsevier, vol. 22(1), pages 208-221.
  4. Christopher F. Baum & Atreya Chakraborty & Boyan Liu, 2010. "The impact of macroeconomic uncertainty on firms' changes in financial leverage," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 15(1), pages 22-30.
  5. Brian M. Lucey, QiYu Zhang* School of Business, Trinity College Dublin, Ireland, 2009. "Emerging Markets Capital Structure and Financial Integration," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp305, IIIS.
  6. Themistokles Lazarides, 2010. "Corporate governance law effect in Greece," Journal of Financial Regulation and Compliance, Emerald Group Publishing, Emerald Group Publishing, vol. 18(4), pages 370-385, November.
  7. Margaritis, Dimitris & Psillaki, Maria, 2010. "Capital structure, equity ownership and firm performance," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(3), pages 621-632, March.
  8. King, Tao-Hsien Dolly & Wen, Min-Ming, 2011. "Shareholder governance, bondholder governance, and managerial risk-taking," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(3), pages 512-531, March.
  9. Robert J. Bianchi & Michael E. Drew & Adam N. Walk, 2010. "On the responsible investment disclosure practices of the world's largest pension funds," Accounting Research Journal, Emerald Group Publishing, Emerald Group Publishing, vol. 23(3), pages 302 - 318, November.
  10. Alves, Paulo & Couto, Eduardo & Francisco, Paulo, 2014. "Board of directors’ composition and financing choices," MPRA Paper 52973, University Library of Munich, Germany, revised 2014.
  11. Thomas Flavin & Thomas O'Connor, 2013. "The effects of ownership structure on corporate financing decisions: Evidence from stock market liberalization," Economics, Finance and Accounting Department Working Paper Series, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth n235-13.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  12. Pornsit Jiraporn & Pandej Chintrakarn & Jang-Chul Kim & Yixin Liu, 2013. "Exploring the Agency Cost of Debt: Evidence from the ISS Governance Standards," Journal of Financial Services Research, Springer, Springer, vol. 44(2), pages 205-227, October.
  13. Harris, Oneil & Glegg, Charmaine, 2009. "Governance quality and privately negotiated stock repurchases: Evidence of agency conflict," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(2), pages 317-325, February.
  14. Thomas O'Connor, 2012. "Dividend payout and corporate governance in emerging markets: which governance provisions matter?," Economics, Finance and Accounting Department Working Paper Series, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth n230-12.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  15. Pornsit Jiraporn & Pandej Chintrakarn & Yixin Liu, 2012. "Capital Structure, CEO Dominance, and Corporate Performance," Journal of Financial Services Research, Springer, Springer, vol. 42(3), pages 139-158, December.
  16. Nogata, Daisuke & Uchida, Konari & Goto, Naohisa, 2011. "Is corporate governance important for regulated firms' shareholders?: Evidence from Japanese mergers and acquisitions," Journal of Economics and Business, Elsevier, Elsevier, vol. 63(1), pages 46-68, January.

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