Impact of Corporate Governance on Corporate Financing and Investment During the 2007-2008 Financial Crisis

44 Pages Posted: 21 Jan 2013 Last revised: 5 Jul 2016

See all articles by Lily Nguyen

Lily Nguyen

The University of Queensland - UQ Business School

Tu Nguyen

La Trobe University; Financial Research Network (FIRN)

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Date Written: January 21, 2013

Abstract

We study the impact of the 2007-2008 financial crisis on nonfinancial firms’ financing and investment and the role of corporate governance in mitigating the adverse consequences of the capital supply shock. Employing a difference-in-differences research design, we find that the credit crisis significantly affects firms’ financing and investment behavior in the first year after the onset of the crisis. However, the adverse effect on financing is mitigated for firms with better governance, and this translates into a smaller decline in these firms’ investment. The results are robust to extending the sample period to include the delayed spillover from the banking sector to other capital market sectors. Overall, the evidence supports the view that better governance mitigates the disruption caused by the external capital supply shock to firms’ normal courses of actions.

Keywords: Corporate Governance, Corporate Financing and Investment, Crisis

Suggested Citation

Nguyen, Lily and Nguyen, Tu and Yin, Xiangkang, Impact of Corporate Governance on Corporate Financing and Investment During the 2007-2008 Financial Crisis (January 21, 2013). 2013 Financial Markets & Corporate Governance Conference; FIRN Research Paper; 2012 FMA Annual Meeting Conference. Available at SSRN: https://ssrn.com/abstract=2204192 or http://dx.doi.org/10.2139/ssrn.2204192

Lily Nguyen

The University of Queensland - UQ Business School ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Tu Nguyen (Contact Author)

La Trobe University ( email )

Bundoora, Victoria, 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Xiangkang Yin

Deakin University ( email )

Melbourne, Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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