The Influence of Corporate Governance Mechanisms on Financial Structure Decision

Abstract

This study examines the relationship between corporate governance mechanisms and financial structure decision among Malaysian public listed companies for the year ended 2013 using the agency theory. Ordinary Least Square regression is used to examine the influence of corporate governance mechanisms on company’s financial structure decision. The independent variables include board size, directors’ remuneration, CEO duality, tenure of CEO, and institutional ownership. The control variable is represented by firm’s size, whereas the dependent variable is financial structure decision. The results indicate that directors’ remuneration and firm’s size have a positive significant relationship with the financial structure decision. The corporate governance is developed to reduce the agency costs and ensuring the separation of ownership and management to protect the shareholder’s rights. This aligns with corporate finance theories, which suggest that financial structure is one of the elements that contribute to the agency cost, while corporate governance is a tool that can mitigate the agency issues.