Corporate governance and capital structure in developing countries: a case study of Bangladesh

Abstract

This paper investigates the influence of firm-level corporate governance on the capital structure pattern of non-financial listed firms, using a case study of Bangladesh. The agency theory suggests that better corporate governance will reduce agency costs and improve investor confidence, which in turn will enhance the ability of a firm to gain access to equity finance, reducing dependence on debt finance. Conversely, the controlling shareholders of poorly governed firms are likely to prefer debt, in order to retain absolute ownership and control rights. The OLS regression framework uses a questionnaire-survey based Corporate Governance Index (CGI). The study results seem to support agency theory, with a statistically significant inverse relationship between corporate governance quality and the total as well as long-term debt ratios.