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Corporate governance, product market competition and dynamic capital structure

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  • Chang, Ya-Kai
  • Chen, Yu-Lun
  • Chou, Robin K.
  • Huang, Tai-Hsin

Abstract

Although the importance of both product market competition on managerial slack and the impact of corporate governance on capital structure decisions have been widely discussed in many of the prior related studies, it appears that very little attention has been paid to the effect of market competition on the relationship that exists between corporate governance and capital structure dynamics. Based upon an examination of this relationship in the present study, we find that product market competition increases the incentives for firms with weak governance structures to maximize the wealth of shareholders, thereby increasing the adjustment speed toward target leverage. Furthermore, the difference in such adjustment speed between firms with weak and strong governance structures is found to be smaller among firms operating in the highly competitive industries.

Suggested Citation

  • Chang, Ya-Kai & Chen, Yu-Lun & Chou, Robin K. & Huang, Tai-Hsin, 2015. "Corporate governance, product market competition and dynamic capital structure," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 44-55.
  • Handle: RePEc:eee:reveco:v:38:y:2015:i:c:p:44-55
    DOI: 10.1016/j.iref.2014.12.013
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    1. repec:eee:reveco:v:51:y:2017:i:c:p:121-144 is not listed on IDEAS
    2. Xin, Xiang, 2018. "Are R&D subsidies effective? The effect of industry competition," Economics Discussion Papers 2018-37, Kiel Institute for the World Economy (IfW).
    3. repec:eee:reveco:v:54:y:2018:i:c:p:299-310 is not listed on IDEAS
    4. repec:kap:jmgtgv:v:22:y:2018:i:1:d:10.1007_s10997-017-9378-4 is not listed on IDEAS
    5. Norbäck, Pehr-Johan & Persson, Lars & Tåg, Joacim, 2018. "Does the debt tax shield distort ownership efficiency?," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 299-310.

    More about this item

    Keywords

    Product market competition; Corporate governance; Capital structure; Speed of adjustment;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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