External Governance and Capital Structure: Evidence from Media Coverage

38 Pages Posted: 8 May 2020 Last revised: 28 Aug 2020

See all articles by Jose M. Martin-Flores

Jose M. Martin-Flores


Arthur Petit-Romec

SKEMA Business School; Université Côte d'Azur

Date Written: April 14, 2020


This paper examines how external governance pressure from the media affects capital structure. Using a comprehensive set of corporate news, we find a negative relation between media coverage and financial leverage. An instrumental variable approach suggests that the effect is causal. Cross-sectional tests indicate that the results are more pronounced when board or shareholder monitoring is weaker. We further find that the effect of media coverage is more pronounced for news related to executives (i.e., the news that are more likely to impose reputational costs on managers). Our findings are consistent with a substitution effect between the external governance imposed by the media and the discipline provided by debt financing.

Keywords: Media Coverage, Corporate News, Capital Structure, Leverage, Corporate Governance

JEL Classification: G14, G30, G32, G41

Suggested Citation

Martin-Flores, Jose-Maria and Petit-Romec, Arthur, External Governance and Capital Structure: Evidence from Media Coverage (April 14, 2020). Available at SSRN: https://ssrn.com/abstract=3576050 or http://dx.doi.org/10.2139/ssrn.3576050

Jose-Maria Martin-Flores (Contact Author)

CUNEF ( email )

Calle de Leonardo Prieto Castro, 2
Madrid, Madrid 28040

Arthur Petit-Romec

SKEMA Business School ( email )

Sophia Antipolis

Université Côte d'Azur ( email )


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