The moderating effect of corporate governance factors on capital structure and performance: evidence from Indian companies

Abstract

Purpose This paper aims to empirically investigate the moderating role of corporate governance (CG) in the capital structure-performance relationship. Design/methodology/approach The analysis is based on top Business Today-500 companies and covers a time span of 10 years. The fixed effect panel regression model is used to examine the impact of CG mechanisms on the relationship between capital structure and firm performance. Findings The core findings of the study indicate significant positive moderating role of board independence, board size and family ownership on the relationship between leverage and performance. Practical implications The results enable the managers of Indian firms to comprehend the significance of CG framework while taking financing decisions. The findings encourage managers to raise debt funds in those firms that adhere to good governance norms. Originality/value Unlike extant studies that emphasize on the moderating impact of single CG variable in leverage-performance relationship, the current work comprehensively examines the role of many CG factors that moderate the relationship between capital structure and firm performance. To the best of the authors’ knowledge, the present study is the first of its kind with respect to India.