Corporate Governance, Financing Pattern and Cost of Capital: Evidence from New Zealand Companies

26 Pages Posted: 24 Aug 2009 Last revised: 29 Mar 2011

See all articles by Hardjo Koerniadi

Hardjo Koerniadi

Auckland University of Technology

Alireza Tourani-Rad

Auckland University of Technology - Faculty of Business & Law

Date Written: August 24, 2009

Abstract

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. We report that firms can dynamically adjust their leverage as a governance mechanism through compensation policy and shareholder rights. Boards are observed to affect firm leverage only when other corporate governance mechanisms are ineffective.

Keywords: Corporate governance, financing policy, cost of capital

JEL Classification: G30, G32

Suggested Citation

Koerniadi, Hardjo and Tourani-Rad, Alireza, Corporate Governance, Financing Pattern and Cost of Capital: Evidence from New Zealand Companies (August 24, 2009). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1460316 or http://dx.doi.org/10.2139/ssrn.1460316

Hardjo Koerniadi (Contact Author)

Auckland University of Technology ( email )

AUT City Campus
Private Bag 92006
Auckland, 1142
New Zealand

Alireza Tourani-Rad

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

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