Corporate Governance Issues and the Financing Decision

This research endeavored to explore two schemes of literature pertains to capital structure i.e. antecedents and consequences of debt borrowing on firm specific and corporate governance factors. This research explores the determinants of capital structure to ascertain whether the financing decisions are optimal or not. Non-financial sector firms accumulated 70% of total firms listed on Pakistan Stock Exchange (PSX). To conclude proposed research, unbalance panel data for 160 non-financial firms listed at PSX from 2007 to 2011 is selected. Results revealed that Return on assets contributes 25% influence on financing decisions regarding debt. Similarly Debt borrowings affect negatively in overall profits. However, its intensity differs within different levels of its determinants. Corporate Governance CG index is negatively associated with debt ratio. Return on assets in terms of size of firm is impacted 29%. Institutional Ownership and debt financing has found a negative association with one and each other. Ownership concentration and debt ratio have strong positive binding between them. Significance of Board Size holds only 2% in debt financing decision making whereas CEO duality holds 68% significance in debt financing decision making. Audit Committee independence and debt ratio are also negatively related. Non-executive directors are found with no influence on capital structure decision making. Board Independence is positively related with leverage and found with no particular implementation of debt financing decisions makings. The outcome of this study can be used to provide managerial information whether their financing decisions are optimal or not and how they should enhance the scope of their financing decisions.

Download Full-text

Dynamic effect of corporate governance on financing decisions: Evidence from Sri Lanka

Asian Academy of Management Journal of Accounting and Finance ◽

10.21315/aamjaf2021.17.2.6 ◽

2021 ◽

Vol 17 (2) ◽

pp. 133-159

Author(s):

Ruzita Abdul-Rahim ◽

Mohamed Cassim Abdul Nazar ◽

Mohd Hasimi Yaacob Abdul-Rahim

Keyword(s):

Corporate Governance ◽

Sri Lanka ◽

Best Practices ◽

Generalized Method Of Moments ◽

Dynamic Effect ◽

Chief Executive ◽

Debt Financing ◽

Financing Decision

This study investigates the role of corporate governance in influencing the debt financing decision of 198 non-financial listed companies in Sri Lanka from 2009 to 2016. Sri Lanka’s corporate governance (CG) code promotes dispersed ownerships, larger board size and balance of power and authority through various means, such as exclusivity between the Chief Executive Officer and Chairperson and the independent Board composition. This study tests the role of CG through four indicators while controlling for other firm-specific variables. Results of the two-step system Generalized Method of Moments on a balance panel data shows that the effect of CG indicators on financing decision depends on the financing terms. In general, the influence of CG indicators is significant on the two debt financing measurements, except for managerial ownership when investments in assets are involved. This influence appears eminent in predicting the debt ratio, although the effect is not necessarily consistent with the hypotheses. The latest revision on CG codes of best practices has also improved firms’ access to debt financing, except for raising long-term debt to acquire assets. Results imply that the Sri Lankan firms adopting the CG best practices would need to rely on other factors to access long-term debt financing or on other external financing sources.

Download Full-text

PENERAPAN CORPORATE GOVERNANCE UNTUK KEPUTUSAN PENDANAAN PADA PERUSAHAAN MULTINASIONAL DAN NON MULTINASIONAL

Tasharruf: Journal Economics and Business of Islam ◽

10.30984/tjebi.v1i2.385 ◽

2017 ◽

Vol 1 (2) ◽

Author(s):

Lydia I Kumajas

Keyword(s):

Corporate Governance ◽

Economic Crisis ◽

Stock Exchange ◽

Multinational Company ◽

Corporate Financing ◽

Controlling Shareholders ◽

Financing Decision ◽

Word Group ◽

Company Group ◽

Observation Period

Abstract The purpose of this research was to compare the implementation of the corporate governance. The comparison are between the companies which the controlling shareholders is a multinational company (group one) and non multinational company (group two), whether in the period before the economic crisis and the period during the economic crisis. Corporate governance is measured by perspective corporate financing decision (DER as a proxy). This research uses samples in a manufacturing company which listed on the Indonesian Stock Exchange. The number of samples is 52 companies, which are divided into 30 companies as a group one and 22 companies in a group two. Observation period was 2006 to 2007 as the period before the crisis and 2008 as a period during the crisis. The result of this research indicated companies in group one had a lower DER than firms in group two in period of crisis. In other word group one has better implementation of corporate governance than group two.

Download Full-text