Governance and Leverage: International Evidence
The Financial Review, forthcoming
45 Pages Posted: 20 Nov 2020 Last revised: 14 Sep 2022
Date Written: October 2, 2020
In this study, we use board reforms across countries as a natural experiment to examine the effect of governance on firm leverage. We find that board reforms are associated with a statistically significant 1-percentage-point increase in leverage overall, and a 5-percentage-point increase on average for firms that had to make large board changes. These results are robust to a variety of specifications and to controls for potential confounding events. The increase in leverage is also larger for firms in weak shareholder rights countries, suggesting that other shareholder rights can substitute in part for board reforms.
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