Capital structure and corporate governance quality: Evidence from the Institutional Shareholder Services (ISS)

Pornsit Jiraporn, Jang Chul Kim, Young Sang Kim, Pattanaporn Kitsabunnarat

Research output: Contribution to journalArticlepeer-review

66 Scopus citations

Abstract

Grounded in agency theory, this study explores how capital structure is influenced by aggregate corporate governance quality. We measure governance quality using broad-based comprehensive governance metrics provided by the Institutional Shareholder Services (ISS). The empirical evidence reveals a robust inverse association between leverage and governance quality. Firms with poor governance are significantly more leveraged. It appears that leverage substitutes for corporate governance in alleviating agency conflicts. Further, we utilize empirical methods that control for endogeneity and show that poor governance quality likely brings about, and does not merely reflect, higher leverage. Our results are important as they show that the overall quality of corporate governance has a material impact on critical corporate decisions such as capital structure choices.

Original languageEnglish (US)
Pages (from-to)208-221
Number of pages14
JournalInternational Review of Economics and Finance
Volume22
Issue number1
DOIs
StatePublished - Apr 2012

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'Capital structure and corporate governance quality: Evidence from the Institutional Shareholder Services (ISS)'. Together they form a unique fingerprint.

Cite this