Abstract
We examine the impact of board characteristics on the speed of adjustment and the capital structure dynamics of firms in bank-based economies. Using 3927 firm-year observations over a 10-year (2009–2019), we find that board characteristic influences firms' speed of adjustment in a bank-based (stakeholder-oriented) system. We also find some evidence that board characteristics have varying impacts on the capital structure of Japanese, French and German firms. We conclude that firms' capital structure reflects the corporate governance environment they operate. Our results are robust to accounting for endogeneity and alternative leverage measure.
Highlights
Prior studies have shown the importance of agency relationships on firms’ financing decisions
Our result shows that the average book leverage of French firms is 24.6% and is higher than those of German firms (20%) and Japanese firms (18.2%)
Outside director is negatively related to market leverage in Germany and France but shows a positive relationship with market leverage in Japan
Summary
Prior studies have shown the importance of agency relationships on firms’ financing decisions. This study, examines the impact of board characteristics on the capital structure dynamics of Japanese, German and French firms, which are classified as bank-based economies with a different (stakeholder-oriented) corporate governance (CG) approach. Previous capital structure studies have ignored the impact of corporate governance on firms’ leverage in market-based economies (Kieschnick and Moussawi 2018; Morellec et al 2012). Most studies adopted an agency approach in (Anglo-Saxon) market-based economies (Barnea et al 1981; Hackbarth 2008; Harris and Raviv 1991; Harvey et al 2004; Leland and Toft 1996; Mauer and Sarkar 2005) This one-sided approach has led to the popularity of the shareholder-oriented CG model as a baseline for comparative evaluation of firms’ capital structure decisions (Kieschnick and Moussawi 2018; Morellec et al 2012).
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