The impact of corporate governance practices on dynamic adjustment of capital structure of companies in Ukraine
Managers are risk averse and less willing than risk neutral shareholders to take on debt. Therefore in firms with poor corporate governance practices, where manager’s preferences dominate shareholders’ objectives, we shall see less debt and slower rates of adjustment of the capital structure. A goal of the paper is to investigate the impact of corporate governance (shareholder rights, transparency and supervisory board arrangements) on the pace of capital structure adjustment. A dataset includes all open joint-stock companies in Ukraine for years 2000-2007. It is found that typical firm in Ukraine completed the required leverage adjustment in about two years. The paper documents evidence that firms that practice better corporate governance benefited from the improved liquidity in 2000-2007 the most as they adjusted their financial structures at higher rates. The coefficients for shareholder rights, supervisory board structure and supervisory board procedure are found to be significant. Transparency variable is not found to have significant impact on speed of adjustment.
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