1、班 级 10 财管 1 班 学 生 姜波（21002137）指导教师 王向静 职 称 讲 师 高科学院 2014 年The influence of corporate governance on the relation between capital structure and value Capital structure: relation with corporate value and main research streamsWhen looking at the most important theoretical contributions on the relation b
2、etween capital structure and value, as illustrated in Figure 1, it becomes immediately evident that there is a substantial difference between the early theories and the more recent ones.Modigliani and Miller （1958）, who had originally asserted that there was no relationship between capital structure
3、 and value ; in 1963, instead, reached the paradoxical and provocative conclusion that a maximum level of debt would mean a maximum level of firm value, due to the fact that interest is tax deductible . Many later contributions pointed out that this effect is compensated when considering personal ta
4、xes （Miller, 1977）,an eventual lack of tax capacity, due to the presence of economic loss, the effect of other types of tax shields （De Angelo and Masulis, 1980）, as well as the introduction of the costs（direct and indirect） of financial distress; all these situations end up creating a trade-off bet
5、ween debt costs and benefits. Point L in Figure 1c indicates an optimal level of debt,beyond which any rise in leverage would cause an increase in the benefits of debt that would be less than proportional with respect to the costs of financial distress. Furthermore, this non monotonic relation would
6、 be modified even more when considering agency costs as well as the costs of financial distress . Finally, one last stream of research （Myers, 1984,Myers 1984） points out managerial preferences when choosing financing resources . In this case no optimal level of debt becomes objectively evident, but
7、 this is due to the various situations the manager had to deal with over time. The function of managerial preference has particular relevance due to information asymmetries, therefore the level of firm indebtedness will be determined by the tangent between the firm value function and the curve of ma
8、nager indifference.Furthermore, it can be observed that debt increases in correspondence with the better the firms reputation is on the market （Chevalier, 1995）. Research has shown similarities between firms that belong to the same sector （Titman and Wessels, 1988）; in other words, capital structure
9、 tends to be industry-specific.The empirical comparison between the trade-off theory and the pecking order theory seems to be controversial. On one hand, empirical evidence shows moderate coherence with the trade-off theory, when revenue and agency problems are taken into consideration contextually;
10、 on the other hand, the negative relation between leverage and firm profit does not seem to support the trade-off theory, as it confirms a hierarchical order in financial decision making.It is, thus, clear that the topic of capital structure is anything but defined and that there are still many open
11、 problems regarding it.As many authors have noted （Rajan and Zingales, 1995） capital structure is a hot topic in finance. By analyzing international literature the main research priorities and new analytical approaches are related to:the important comparison between rational and behavioural finance
12、（Barberis and Thaler, 2002）;a lively comparison made between the pecking order theory and the trade-off theory（Shyam-Sunder and Myers, 1999）;the attempt to apply these theories to small firms （Berger and Udell, 1998, Fluck, 2001）;the role of corporate governance on the relation between capital struc
13、ture and value（Heinrich, 2000, Bhagat and Jefferis, 2002, Brailsford et al., 2004, Mahrt-Smith, 2005）.The behavioural approach, that considers the pecking order of financial resources in terms of irrational preferences, caused an immediate reaction from Stewart Myers in 2000 and 2001 and jointly wit
14、h Shyam-Sunder in 1999 （Myers, 2000; 2001; Shyam-Sunder and Myers,1999）. Stewart Myers is the founder of the pecking order theory7. Problems of information asymmetry, together with transaction costs, would be able to offer a rational explanation to managerial behaviour when financial choices are mad
15、e following a hierarchical order （Fama and French, 2002）. In other words, according to Myers and Fama, there should be arational explanation to the phenomenon observed by Stein, Baker, Wrugler, Barberis and Thaler.Moreover, studies on capital structure have also been done looking at small and medium
16、 size firms （Berger and Udell, 1998, Michaelas et al., 1999, Romano et al., 2000, Fluck, 2001）,due to the relevant economic role of these firms （in Europe they are 95 percent of the total firms operating）. Zingales （2000） as well has emphasized the fact that today . . . the attention shown towards l
17、arge firms tends to partially obscure firms that do not have access to the financial markets . . . . In one of the most interesting studies done on this topic, Berger and Udell （1998） asserted that firm financial behaviour depends on what phase of their life cycle they are in. In fact, there should
18、be an optimal pro-tempore capital structure, related to the phase of the life cycle that the firm is in.Finally, the observations of Michael Jensen （1986）, made throughout his many contributions on corporate governance, as well as those of Williamson （1988）, have encouraged a line of research that,
19、revitalized in the second part of the nineties, seems to be quite promising as a means to analyze how corporate governance directly or indirectly influences the relation between capital structure and value （Fluck, 1998, Zhang, 1998, Myers, 2000, De Jong, 2002,Berger and Patti, 2003, Brailsford et al
20、., 2004, Mahrt-Smith, 2005）. In synthesis, it is possible to affirm, as it follows, that a joined analysis of capital structure and corporate governance is necessary when describing and interpreting the firms ability to create value （Zingales, 2000, Heinrich, 2000, Bhagat and Jefferis, 2002）. This t
21、ype of consideration could help overcome the controversy found when studying the relation between capital structure and value, on both a theoretical and empirical level.Influence of corporate governance on the relation between capital structure and value.Capital structure can be analyzed by looking
22、at the rights and attributes that characterize the firms assets and that influence, with different levels of intensity, governance activities. Equity and debt, therefore, must be considered as both financial instruments and corporate governance instruments （Williamson, 1988）: debt subordinates gover
23、nance activities to stricter management, while equity allows for greater flexibility and decision making power. It can thus be inferred that when capital structure becomes an instrument of corporate governance, not only the mix between debt and equity and their well known consequences as far as taxe
24、s go must be taken into consideration. The way in which cash flow is allocated （cash flow right） and, even more importantly, how the right to make decisions and manage the firm （voting rights） is dealt with must also be examined. For example, venture capitalists are particularly sensitive to how cap
25、ital structure and financing contracts are laid out, so that an optimal corporate governance can be guaranteed while incentives and checks for management behavior are well established （Zingales, 2000）10.Coase （1991）, in a sort of critique on his own work done in 1937, points out that it is important
26、 to pay more attention to the role of capital structure as an instrument that can mediate and moderate economical transactions within the firm and, consequently, between entrepreneurs and other stakeholders （corporate governance relations）.As explicitly pointed out by Bhagat and Jefferis （2002）, whe
27、n they pay particular attention to the relations between cause and effect and to their interactions recently described on a theoretical level （Fluck, 1998, Zhang, 1998, Heinrich, 2000, Brailsford et al., 2004,Mahrt-Smith, 2005）, a research proposal that future empirical studies should evaluate shoul
28、d be, how corporate governance can potentially have a relevant influence on the relation between capital structure and value, with an effect of mediation and/or moderation. The five relations identified in Figure 2 describe:the relation between capital structure and firm value （relation A） through a
29、 role of corporate governance mediation ; the relation between capital structure and firm value （relation A） through the role of capital governance moderation （relation D）;the role of corporate governance as a determining factor in choices regarding capital structure （relation E）.All five relations
30、shown in Figure 2 are particularly interesting and show two threads of research that focus on the relations between:corporate governance and capital structure, where the dimensions of the corporate governance determine firmfinancing choices, causing a possible relation of co-causation Whether manage
31、ment voluntarily chooses to use debt as a source of financing to reduce problems of information asymmetry and transaction, maximizing the efficiency of its firm governance decisions, or the increase in the debt level is forced by the stockholders as an instrument to discipline behavior and assure go
32、od corporate governance, capital structure is influenced by corporate governance （relation E） and vice versa （relation B）.On one hand, a change in how debt and equity are dealt with influences firm governance activities by modifying the structure of incentives and managerial control. If, through the mix debt and equity, different categories of investors all converge within the firm, where they have different types of influence on governance dec
