The Influence of Corporate Governance on the Relation Between Capital Structure and Value

Abstract

The present paper focuses on a well-known topic in the financial literature: the relation between capital structure and firm value. The controversial empirical results on this topic can be attributable to a lack of attention to the interaction between capital structure and other corporate governance variables. In fact, capital structure represents a corporate governance device as others. The debate needs to take directly into account the role of moderation and/or mediation of the corporate governance on the relation between capital structure and firm's value. To appreciate the relation between capital structure and firm value it is necessary to consider the presence of complementarity with other corporate governance variables as ownership concentration, managerial ownership, the role of the Board of Directors, and so on. The paper, after a synthetic review of the theoretical literature, provides a theoretical model, and some suggestions, that should be applied for future empirical research on this topic.