Enforcement, corporate governance, and financial decisions
ISSN: 1472-0701
Article publication date: 27 March 2023
Issue publication date: 29 June 2023
Abstract
Purpose
This study aims to analyze the impact of corporate governance on firms’ external financing decisions in the Middle East and North Africa (MENA) region.
Design/methodology/approach
The authors analyzed a unique set of panel data comprising 2,425 nonfinancial firms whose shares are traded on stock exchanges in countries in the MENA region. The authors fitted an ordinary least squares model to estimate the regression coefficients. The authors performed a sensitivity analysis using alternative measures of the critical variables and an endogeneity analysis using instrumental variable methods with plausible external instruments.
Findings
The results revealed that corporate governance characteristics of firms are strongly associated with their degree of leverage. They also showed that macrofinancial conditions, financial regulations, corporate governance enforcement and social conditions mitigate the impact of corporate governance on firms’ financing decisions.
Research limitations/implications
A larger sample size will further improve the results; however, this is difficult and depends on the extent to which increasing disclosure practices allow more corporate information to reach international databases.
Practical implications
This study provides new evidence on the role of corporate governance on firms’ financing decisions and documents the essential mitigating role of institutions, alerting managers to consider them.
Originality/value
This study is a novel attempt. Based on information from different data sources, this study explored the predictive power of corporate governance, ownership structures and other firm-specific characteristics in explaining corporate leverage in MENA countries. Overall, the analysis provides new evidence of the association between corporate governance and capital structure in the MENA region, highlighting the critical role of institutions.
Keywords
Acknowledgements
The authors would like to thank the editor and anonymous referees for their comments and feedback. The authors would like also to thank the editorial assistants and the production team for their support throughout the editorial process from manuscript to publication. The authors would like also to thank Editage for their extensive support in editing this article.
Funding: This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.
Conflicts of interest: All authors contributed equally to this research and declare that they have no conflicts of interest.
Compliance with ethical standards: The research in this paper does not contain any studies with human participants and/or animals performed by any of the authors.
Citation
Mertzanis, C., Nobanee, H., Basuony, M.A.K. and Mohamed, E.K.A. (2023), "Enforcement, corporate governance, and financial decisions", Corporate Governance, Vol. 23 No. 5, pp. 1175-1216. https://doi.org/10.1108/CG-11-2021-0435
Publisher
:Emerald Publishing Limited
Copyright © 2023, Emerald Publishing Limited