The Moderating Eect of Corporate Governance on the Relationship between Capital Structure and Firm Performance.

This paper investigates the relationship between; (1) Capital Structure (CS) and Firm Performance (FP), and (2) examines whether Corporate Governance (CG) mechanisms can moderate the CS -FP relation. Fixed-effect regression model is used to estimate the coefficients of the variables. The result shows a significant positive relation between CS and FP. The result supports the argument that mangers under agency conflict many opt for lower debt in other to avoid the disciplinary role as well as the performance pressure associated with debt covenants. The result also show that board independence, board diversity, block ownership, managerial ownership and government ownership significantly moderates the CS- FP relationship. The paper contributes to the literature on CS, FP and CG. Specifically, it contributes to the extant literature by demonstrating why and how CG can significantly influence the CS-FP nexus. The findings have significant implication for both firm managers and shareholders. Thus, the need to pay attention to corporate governance mechanisms as a way to mitigate managerial opportunities tendencies in the firm decision making to maximize shareholder’s utility.