ترکیب ساختار سرمایه و هیئت مدیره (گروه راهبران)

ABSTRACT Board of directors’ composition and capital structure

Since the Modigliani and Miller (1958) seminal paper that many studies attempt to explain the capital structure used by corporations to finance their investments. One prominent line of research is the pecking order theory of Myers (1984) and Myers and Majluf (1984). This theory argues that because of adverse selection costs, firms have an order of preference in the use of their financing sources. The theory predicts that firms prefer to use retained earnings over debt, short-term debt over long-term debt and debt over equity. This pecking order arises from information asymmetries between managers and outside investors.

This study builds on the pecking order theory and analyses the effect of the board of directors’ composition on the structure of the firm’s financing sources. We conjecture that a more independent and effective board of directors increases the quality and quantity of information provided by insiders to the public and therefore reduce the adverse selection costs considered by the pecking order theory. To test this hypothesis we analyse the effect of the board of directors’ features on the structure of the different sources of financing. That is, the research question here addressed asks whether the board of directors’ composition has an influence on the structure of financing sources. Given that less information asymmetry leads to less use of retained earnings, the impact of having a more independent board on the use of equity can be difficult to assess, since retained earnings is part of the firm’s equity. To address this problem the present study analyses the effect of board composition on external equity and internal generated equity (i.e. retained earnings). Further, since the pecking order predicts that if debt capital is needed firms should use short term debt rather than long term we segregate the firm sources of financing into retained earnings, short term debt and long term debt. We then analyse the association between board of directors’ composition and the structure of each one of these financing sources.

After controlling for a wide set of control variables, the results of the empirical investigation support the proposed hypotheses. Particularly, it is found that the fraction of independent directors on the board is positively associated with the fraction of external financing. Moreover, the board of directors’ independence is also positively associated with a debt structure composed with more long term debt than short term debt. Furthermore, firms with more independent directors have a capital structure composed with more external equity than long term debt. The results also provide some evidence that a more gender-diversified board of directors and where the chairman is non-executive can lead the firm to have a capital structure composed with more long term sources of financing. These results are robust to a number of specifications and robustness tests.

This study extends the empirical work on the effect of corporate governance on capital structure in three main ways. First, the present study focus on particular attributes of the board of directors structure, namely the total number of independent directors, the fraction of female directors, the board size and if the Chief Executive Officer (CEO) is also the chairman of the board of directors. This focused analysis is important because many of the aggregated indices may include governance devices that are both beneficial to shareholders and to the bondholders as is the case of the antitakeover devices (Bradley and Chen, 2011). Second, since the pecking order theory have different empirical implications in regard to different types of financing sources, this study analyses the effect of board structure on the fraction of retained earnings, external equity, short-term debt and long-term debt. Finally, this study provides new insights on the determinants of capital structure and adds to the discussion over capital structure theories.

The remaining of the paper is organized as follows. In the next section the capital structure literature and the literature addressing the effect of board composition on capital structure is reviewed and the main hypotheses developed. In section 3 the data and the methodology is presented. The results are presented and discussed in section 4 and section 5 concludes with policy implications of the finding.