Corporate Governance and Capital Structure: A Spanish Study

This study explores the relationship between capital structure and corporate governance using a data panel of Spanish listed firms over the period 2005 to 2011. Specifically two notable conflicts in the area of corporate governance have been analysed: (i) managerial ownership; and (ii) controlling shareholders ownership. Our findings confirm a non-monotonic relationship between both managerial ownership and ownership concentration, and capital structure. In order to mitigate endogeneity concerns, a number of robustness tests have been performed. The empirical evidence obtained yields a number of implications such as the shareholders' need to monitor entrenched managers, the insufficient protective legislation to prevent the expropriation of minority shareholders and the desirability of examining corporate governance factors in order to better understand a firm's financial policy.