外文翻译
The influence of corporate governance on the relation between
capital structure and value
Material Source: Corporate Governance Author: Maurizio La Rocca Researches in Business Economics, and in particular, in Business economics and Finance have always analyzed the processes of economic value creation as their main field of studies. Starting from the provocative work of Modigliani and Miller (1958), capital structure became one of the main elements that following studies have shown as being essential in determining value. Half a century of research on capital structure attempted to verify the presence of an optimal capital structure that could amplify the company’s ability to create value.
There is again quite a bit of interest in the topic of firm capital structure, on whether or not it is necessary to consider the important contribution offered by corporate governance as a variable that can explain the connection between capital structure and value, controlling opportunistic behavior in the economic relations between shareholders, debt holders and managers. In this sense, capital structure can influence firm value.
Therefore, this paper examines the theoretical relationship between capital structure, corporate governance and value, formulating an interesting proposal for future research. The second paragraph describes the theoretical and empirical approach on capital structure and value, identifying the main threads of study. After having explained the concept of corporate governance and its connection with firm value, the relationship between capital structure, corporate governance and value, as well as the causes behind them, will be investigated.
Capital structure: relation with corporate value and main research streams When looking at the most important theoretical contributions on the relation between capital structure and value, it becomes immediately evident that there is a substantial difference between the early theories and the more recent ones.
Influence of corporate governance on the relation between capital structure and value
Capital structure can be analyzed by looking at the rights and attributes that characterize the firm’s 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 governance 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 taxes go must be taken into consideration. The way in which cash flow is allocated 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 capital 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).
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.
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 decisions, then managers will tend to have preferences when determining how one of these categories will prevail when defining the firm’s capital structure. Even more importantly, through a specific design of debt contracts and equity it is possible to considerably increase firm governance efficiency.
On the other hand, even corporate governance influences choices regarding capital structure. Myers (1984) and Myers and Majluf (1984) show how firm financing choices are made by management following an order of preference; in this case, if the manager chooses the financing resources it can be presumed that she is avoiding a reduction of her decision making power by accepting the discipline represented by debt. Internal resource financing allows management to prevent other subjects from intervening in their decision making processes. De Jong (2002) reveals how in the Netherlands managers try to avoid using debt so that their decision making power remains unchecked. Zwiebel (1996) has observed that managers don’t voluntarily accept the ‘‘discipline’’ of debt; other governance mechanisms impose that debt is issued. Jensen (1986) noted that decisions to increase firm debt are voluntarily made by management when it intends to
‘‘reassure’’ stakeholders that its governance decisions are ‘‘proper’’.
The B-C-A relation that indicates the relation between capital structure and value is actually explained thanks to a third variable (corporate governance) that ‘‘intervenes’’ (and for this reason is called an ‘‘intervening variable’’) in the relation between capital structure and value. This would create a ‘‘bridge’’ by mediating between leverage and value, thus showing a connection that otherwise would not be visible. It can not be said that there is no relation between capital structure and value (Modigliani and Miller, 1958), but the connection is mediated and, in an economic sense, it is formalized through a causal chain between variables. In other words, it is not possible to see a direct relation between capital structure and value, but in reality capital structure influences firm governance that is connected to firm value.
Furthermore, the relation between capital structure and corporate governance becomes extremely important when considering its fundamental role in value generation and distribution (Bhagat and Jefferis, 2002). Through its interaction with other instruments of corporate governance, firm capital structure becomes capable of protecting an efficient value creation process, by establishing the ways in which the generated value is later distributed (Zingales, 1998); in other words the surplus created is influenced (Zingales, 2000).
Therefore, the relation between capital structure and value could be set up differently if it were mediated or moderated by corporate governance. Nonetheless, capital structure could also intervene or interact in the relation between corporate governance and value. In this manner a complementary relationship, or one where substitution is possible, could emerge between capital structure and other corporate governance variables. Debt could have a marginal role of disciplining management when there is a shareholder participating in ownership or when there is state participation. To the contrary, when other forms of discipline are lacking in the governance structure, capital structure could be exactly the mechanism capable of protecting efficient corporate governance, while preserving firm value. Conclusion
This paper defines a theoretical approach that can contribute in clearing up the relation between capital structure, corporate governance and value, while they also promote a more precise design for empirical research. Capital structure represents one of many instruments that can preserve corporate governa
资本结构和企业价值之间的关系对公司治理的影响[外文翻译]
