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The impact of divergence in voting and cash-flow rights on the use of bank debt

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  • Chong, Beng Soon

Abstract

This paper examines the debt ownership structure of firms with corporate governance problems associated with the divergence in the controlling shareholders' voting and cash-flow rights. Previous studies suggest that debt can play an important role in mitigating corporate governance problems. However, not all debt can effectively manage the corporate governance problems associated with the financing of poorly governed firms. In this study, we find that firms with higher divergence in voting and cash-flow rights use significantly more bank debt financing. Moreover, the effect of the divergence in voting and cash-flow rights on the use of bank debt is greater in countries with weaker legal protection for investors. Overall, our findings suggest that bank debt has a comparative advantage in financing poorly governed firms.

Suggested Citation

  • Chong, Beng Soon, 2010. "The impact of divergence in voting and cash-flow rights on the use of bank debt," Pacific-Basin Finance Journal, Elsevier, vol. 18(2), pages 158-174, April.
  • Handle: RePEc:eee:pacfin:v:18:y:2010:i:2:p:158-174
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hsien-Chang Kuo & Lie-Huey Wang & Hui-Wen Liu, 2012. "Corporate Governance and Capital Structure:Evidence from Taiwan SMEs," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 43-58, August.
    2. Lee, Shih-Cheng & Lin, Chien-Ting & Chang, Pei-Ting, 2011. "An Ohlson valuation framework for valuing corporate governance: The case of Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 19(4), pages 420-434, September.
    3. Yao-Hung Yang & Ya-Hui Lin & Ghi-Feng Yen, 2012. "A Study on Efficiency Monitoring and Interest Assimilation in Corporate Governance: Listed Companies in Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 169-183, July.
    4. Thomas O'Connor & Thomas Flavin, 2013. "The Effects of Ownership Structure on Corporate Financing Decisions: Evidence from Stock Market Liberalization," International Review of Finance, International Review of Finance Ltd., vol. 13(3), pages 383-405, September.
    5. Yao-Hung Yang & Ya-Hui Lin & Ghi-Feng Yen, 2012. "A Study on Efficiency Monitoring and Interest Assimilation in Corporate Governance: Listed Companies in Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 169-183, July.
    6. Kuan, Tsung-Han & Li, Chu-Shiu & Chu, Shin-Herng, 2011. "Cash holdings and corporate governance in family-controlled firms," Journal of Business Research, Elsevier, vol. 64(7), pages 757-764, July.

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