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Corporate governance and capital structure: Evidence from sustainable institutional ownership

Authors
Choi, Paul Moon SubChoi, Joung HwaChung, Chune YoungAn, Yun Joo
Issue Date
May-2020
Publisher
MDPI AG
Keywords
Capital structure; Institutional investor; Monitoring; Sustainable corporate governance
Citation
Sustainability (Switzerland), v.12, no.10
Journal Title
Sustainability (Switzerland)
Volume
12
Number
10
URI
https://scholarworks.bwise.kr/cau/handle/2019.sw.cau/41863
DOI
10.3390/su12104190
ISSN
2071-1050
2071-1050
Abstract
Because corporate sustainability enhances corporate governance principles, firms are increasing their efforts to provide transparency and public disclosure. These efforts inform the public about the relationship between corporate governance and sustainability. Well-informed shareholders know about this relationship, which is becoming more apparent over time. In this study, we empirically examined the possible bilateral relationships between institutional ownership and a firm's capital structure. Methodologically, we used an instrumental variable approach and the two-step generalized method of moments. The implications of this study are two-fold. First, we found that a firm's debt level was low if its institutional ownership level was high. Institutional monitoring may substitute for external debt monitoring, leading firms to employ low leverage. Second, we found that the level of institutional ownership was high if a firm's debt level was high. This association suggests that institutional investors prefer high-leveraged firms because institutional owners decrease their monitoring costs through debt monitoring. In the long run, sustainable institutional ownership materially impacts the capital structures of firms. © 2020 by the authors.
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