Does Corporate Governance Influence the Utilisation of Proceeds from External Financing? Evidence from Equity and Debt Issuance Activities

78 Pages Posted: 3 Jan 2017

See all articles by Shumi M. Akhtar

Shumi M. Akhtar

The University of Sydney

Farida Akhtar

Curtin University

Ye Ye

University of Sydney, Business School, Discipline of Finance

Date Written: December 1, 2016

Abstract

This paper investigates the effect of corporate governance quality on firms' security issuance decisions between equity and debt and the subsequent use of proceeds from the issuance. We use a new governance proxy from Datastream ESG - Asset 4 to directly measure firms' corporate governance quality. We find that good governance firms are more likely to issue debt rather than equity. In addition, weakly-governed firms tend to engage in acquisitions after the new issuance. Furthermore, corporate governance does not influence dividend payouts after seasoned equity issuance. Strong governance, however, has a positive effect on dividend payouts after debt issuance, indicating good interest alignment between managers and shareholders. Finally, cash holdings for discretionary motives are not affected by the joint effect of security issuance and corporate governance.

Keywords: Corporate governance, Equity issuance, Debt issuance, Finance decisions

JEL Classification: G30, G34, G35

Suggested Citation

Akhtar, Shumi M. and Akhtar, Farida and Ye, Ye, Does Corporate Governance Influence the Utilisation of Proceeds from External Financing? Evidence from Equity and Debt Issuance Activities (December 1, 2016). Available at SSRN: https://ssrn.com/abstract=2892500 or http://dx.doi.org/10.2139/ssrn.2892500

Shumi M. Akhtar (Contact Author)

The University of Sydney ( email )

University of Sydney Business School
corner of Codrington Street and Darlington Street
Chippendale, NSW 2006
Australia
61290369309 (Phone)

HOME PAGE: http://www.firn.org.au

Farida Akhtar

Curtin University ( email )

Kent Street
Bentley
Perth, WA WA 6102
Australia

Ye Ye

University of Sydney, Business School, Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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