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  • July 2021
  • Article
  • International Review of Financial Analysis

Multinationality and Capital Structure Dynamics: A Corporate Governance Explanation

By: Daniel Gyimah, Nana Abena Kwansa, Anthony K. Kyiu and Anywhere Sikochi
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Abstract

This paper examines the impact of corporate governance on capital structure dynamics. Using ordinary least squares regressions on 17,496 firm-year observations for 2,294 U.S. multinational companies (MNCs) over the period 1990–2018, we find that MNCs with strong corporate governance use more debt than those with weak governance. Furthermore, strong corporate governance is associated with a faster speed of adjustment to capital structure. This relationship is more pronounced for MNCs than domestic companies, and particularly for overlevered firms. We also use the two-part zero-inflated fractional regression model, instrumental variable, and structural equation model estimations to deal with any endogeneity concerns associated with the explanatory variables. Overall, our findings, which withstand a battery of robustness checks, suggest that improvements in corporate governance reduce the costs of monitoring for bondholders, resulting in increased debt financing.

Keywords

Multinationality; Speed Of Adjustment; Corporate Governance; Multinational Firms and Management; Capital Structure

Citation

Gyimah, Daniel, Nana Abena Kwansa, Anthony K. Kyiu, and Anywhere Sikochi. "Multinationality and Capital Structure Dynamics: A Corporate Governance Explanation." Art. 101758. International Review of Financial Analysis 76 (July 2021).
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About The Author

Anywhere Sikochi

Accounting and Management
→More Publications

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More from the Authors
  • The Credit Rating Agency Market in Africa By: Saveshen Pillay and Anywhere Sikochi
  • Why Is Corporate Virtue in the Eye of the Beholder? The Case of ESG Ratings By: Dane Christensen, George Serafeim and Anywhere Sikochi
  • Transitory and Permanent Cash Flow Shocks in Debt Contract Design By: Le Ma, Anywhere Sikochi and Yajun Xiao
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