Capital Structure, Shareholder Rights, and Corporate Governance

23 Pages Posted: 13 Oct 2005

See all articles by Pornsit Jiraporn

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Kimberly C. Gleason

American University of Sharjah

Date Written: August 2005

Abstract

We show how capital structure is influenced by the strength of shareholder rights. The empirical evidence shows an inverse relationship between leverage and shareholder rights, suggesting that firms adopt higher debt ratios where shareholder rights are more restricted. This is consistent with agency theory, which predicts that leverage helps alleviate agency problems. This negative relationship, however, is not found in regulated firms (i.e., utilities). We contend that this is because regulation already helps alleviate agency conflicts, and hence, mitigates the role of leverage in controlling agency costs.

Keywords: capital structure, shareholder rights, corporate governance

JEL Classification: G30, G32, G34

Suggested Citation

Jiraporn, Pornsit and Gleason, Kimberly C., Capital Structure, Shareholder Rights, and Corporate Governance (August 2005). Available at SSRN: https://ssrn.com/abstract=792604 or http://dx.doi.org/10.2139/ssrn.792604

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Kimberly C. Gleason

American University of Sharjah ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

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