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The influence of corporate governance on the relation between capital structure and value

Maurizio La Rocca (University of Calabria, Arcavacata di Rende, Italy.)

Corporate Governance

ISSN: 1472-0701

Article publication date: 19 June 2007

9432

Abstract

Purpose

The paper aims to focus on a well‐known topic in the financial literature: the relation between capital structure and firm value. The controversial empirical results on this topic can be attributable to a lack of attention to the interaction between capital structure and other corporate governance variables. In fact, capital structure represents a corporate governance device that can preserve corporate governance efficiency and protect its ability to create value.

Design/methodology/approach

The paper, after a synthetic review of the main literature, defines, with a descriptive model, a theoretical approach that can contribute in clearing up the relation between capital structure, corporate governance and value. It provides a research proposition, and some suggestions, that should be applied for future empirical research on this topic while it also promotes a more precise design for empirical analysis.

Findings

The debate on the relation between capital structure and a firm's value needs to take directly into account the role of moderation and/or mediation of the corporate governance. It is necessary to consider the presence of complementarity between capital structure and other corporate governance variables such as: ownership concentration; managerial ownership; the role of the board of directors; and so on.

Research limitations/implications

This paper promotes, as an aim for future research, a verification of the validity of this model through application of the analysis to a wide sample of firms.

Originality/value

The paper tried to suggest how to improve previous controversial analysis on this topic.

Keywords

Citation

La Rocca, M. (2007), "The influence of corporate governance on the relation between capital structure and value", Corporate Governance, Vol. 7 No. 3, pp. 312-325. https://doi.org/10.1108/14720700710756580

Publisher

:

Emerald Group Publishing Limited

Copyright © 2007, Emerald Group Publishing Limited

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