Corporate Governance, Financing Patterns and the Cost of Capital: Evidence from New Zealand Companies
Auckland University of Technology
Alireza Tourani Rad
Auckland University of Technology - Faculty of Business & Law
December 7, 2011
2012 Financial Markets & Corporate Governance Conference
In this paper, we examine the effects of corporate governance mechanisms on the financing policies of New Zealand firms for the period 2004-2008. Using a unique self-constructed corporate governance index and employing the Fama and French (1999) financing model of firms, we find that firms with weak corporate governance mechanisms have more leverage than do firms with strong governance mechanisms. After controlling for the effects among corporate governance components, we observe that firms with different levels of corporate governance quality use different corporate governance mechanisms in relation to their financing policies. Our results suggest that firms can dynamically adjust their leverage as a governance mechanism through compensation policy and shareholder rights.
Number of Pages in PDF File: 26
Keywords: Corporate governance, financing policy, cost of capital
JEL Classification: G30, G32working papers series
Date posted: December 8, 2011 ; Last revised: February 28, 2012
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