Abstract
This study aims to analyze the influence of corporate governance on firm leverage. It also investigates the moderating effect of firm age on the association between corporate governance and leverage. Using a sample of Chinese listed firms, it addresses several issues that have been identified in the prior literature regarding capital structure. This study provides novel findings which reveal that CEO duality and board commissions have a statistically significant role in determining the leverage levels for NSOEs, however, the positive effect of board commissions established on leverage decreases as the firm ages. Board size, board independence and supervisory boards influence the leverage levels for SOEs, however, the negative effects of board independence and supervisory boards on leverage reduce as the firm grows older. Keywords: Corporate governance, leverage, firm age, Chinese listed firms DOI : 10.7176/RJFA/10-2-03
Highlights
The fundamental objective of a firm is the maximization of the wealth of shareholders
We find that both leverage and firm age are positively correlated with board size, number of independent directors and number of members on supervisory board
We find that the interaction term of firm age and number of commissions established is negative and statistically significant for NSOEs, Whereas, for SOEs, we find that interaction terms of firm age with board independence and supervisory board are positive and statistically significant
Summary
The fundamental objective of a firm is the maximization of the wealth of shareholders. In the light of above arguments, we first examine empirically if corporate governance plays any role in determining the leverage structure of Chinese firms, and whether this relationship is different for firms at different age levels or not. We follow the Papke and Wooldridge (1996) and apply GLM (Generalized Linear Model) with logit link function to analyze how corporate governance affects leverage structure and the moderating effect of firm age on this relationship. This study provides some novel findings about the effect of firm age on the relationship between corporate governance and leverage in the context of Chinese listed firms which have a unique and distinctive institutional and governance structures than those of developed countries. Our final dataset consists of 3,026 firms with 26,924 firm-year observations
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