A study on capital structure and corporate governance

Kim, Ryoonhee

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https://hdl.handle.net/2142/24484 Copy

Description

Title

A study on capital structure and corporate governance

Author(s)

Kim, Ryoonhee

Issue Date

2011-05-25T14:22:30Z

Director of Research (if dissertation) or Advisor (if thesis)

Almeida, Heitor

Doctoral Committee Chair(s)

Almeida, Heitor

Committee Member(s)

• Johnson, Timothy C.
• Campello, Murillo
• Hackbarth, Dirk

Department of Study

Finance

Discipline

Finance

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

• capital structure
• executive compensation
• agency conflicts
• business group
• product market
• acquisition

Abstract

Capital structure and corporate governance are the important areas that represent salient part of corporate finance research. By studying various aspects of the two areas, this study attempts to deepen our understanding of the two. First, this study provides both a theoretical model and empirical evidence on the interaction between capital structure and managerial incentive compensation (one of key measures of corporate governance). Researchers acknowledge that the two interact to each other and the interaction should affect their optimal determination, but few studies formally consider the interaction. This study shows that due to the interaction through agency conflicts, key firm characteristics that represent agency costs affect leverage and managerial incentive compensation in opposite directions. After controlling for the opposite interactions, the two are shown to be positively related. Second, this study provides empirical evidence on the interaction between financial structure and product market performance by examining business group affiliated firms. The firms that are affiliated to a business group is not only affected by their own financial position, but also affected by the position of business groups which the firms belong to. The empirical investigation suggests that affiliated firms lose market shares to their rivals in their product market when their business group is financially weak due to high group leverage. Third, this study examines whether special governance structure of business groups is actually beneficial to the groups’ member firms. The study exploit unique dataset of firms that were once stand alone, but later acquired by business groups. The empirical methodology we employ can account for the fact that the firms which are acquired by business groups can be very different from other firms which are not acquired. The findings from matching estimator suggest that performance increase of the acquired firms is significantly greater than the performance of matched stand alone firms, implying that business groups are actually helping their affiliated firms to perform better than stand alone firms.

Graduation Semester

2011-05

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http://hdl.handle.net/2142/24484

Copyright and License Information

Copyright 2011 Ryoonhee Kim

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