Debt, Maturity, and Corporate Governance: Evidence from Korea

Abstract

ABSTRACTUsing a unique survey data set, I examine how corporate governance practices of listed Korean firms can affect debt ratio and debt maturity structure. I find that firms with poor governance tend to have a higher debt ratio (especially short-term debt ratio) than firms with good governance. I also show that the documented relationships between corporate governance and debt ratio and between corporate governance and debt maturity are not significantly different between chaebol (Korean business group) and non-chaebol firms. These findings suggest that (short-term) debt financing can be used as a monitoring tool to mitigate agency problems because financial intermediaries monitor the managers of the borrowing firms. This study contributes to the corporate governance literature by providing evidence that debt capital, especially short-term debt, can be used as a complementary monitoring tool for poorly governed firms in an emerging economy.