External governance and capital structure: evidence from media coverage. Issue 2 (3rd April 2022)

• Record Type: Journal Article
• Authors: Martin-Flores, Jose-Maria; Petit-Romec, Arthur
• Is Part Of: Revista española de financiación y contabilidad. Volume 51:Issue 2(2022)
• Page Start: 183
• Page End: 212
• Publication Date: 2022-04-03
• Subjects: Media coverage -- corporate news -- capital structure -- leverage -- corporate governance; G14 -- G30 -- G32 -- G41; Finance -- Spain -- Periodicals; Finance -- Periodicals; Accounting -- Spain -- Periodicals; Accounting -- Periodicals; Banks and banking -- Periodicals; 332.094605
• DOI: 10.1080/02102412.2021.1905262
• Languages: English
• ISSNs: 0210-2412

Abstract

ABSTRACT: This paper examines how external governance pressure from the media affects capital structure. Using a comprehensive set of corporate news, we find a negative relation between media coverage and financial leverage. The tests we use to address endogeneity suggest that the effect is causal. Cross-sectional tests indicate that the results are more pronounced when board or shareholder monitoring is weaker. We further find that the effect of media coverage is more pronounced for news related to executives (i.e., the news that are more likely to impose reputational costs on managers). Our findings are consistent with a substitution effect between the external governance imposed by the media and the discipline provided by debt financing.