Multinationality and capital structure dynamics: A corporate governance explanation

Gyimah, D.; Kwansa, N.A.; Kyiu, A.K.; Sikochi, A.S.

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, and 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.

Citation

Gyimah, D., Kwansa, N., Kyiu, A., & Sikochi, A. (2021). Multinationality and capital structure dynamics: A corporate governance explanation. International Review of Financial Analysis, 76, Article 101758. https://doi.org/10.1016/j.irfa.2021.101758

• Journal Article Type: Article
• Acceptance Date: Apr 5, 2021
• Online Publication Date: Apr 12, 2021
• Publication Date: 2021-07
• Deposit Date: Apr 8, 2021
• Publicly Available Date: Apr 12, 2023
• Journal: International Review of Financial Analysis
• Print ISSN: 1057-5219
• Electronic ISSN: 1873-8079
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 76
• Article Number: 101758
• DOI: https://doi.org/10.1016/j.irfa.2021.101758
• Public URL: https://durham-repository.worktribe.com/output/1277888