Corporate Governance and Capital Structure in Developing Countries : A Case Study of Bangladesh

The paper investigates the influence of firm-level corporate governance on the capital structure pattern of non-financial listed firms using Bangladesh's case study. The agency theory suggests that better corporate governance will reduce agency costs and improve investors' confidence, which in turn enhances the firm's ability to gain access to equity finance, leading to the firm's less dependence on debt finance. Alternatively, the controlling shareholders of poorly governed firms are likely to prefer debt in order to retain absolute ownership and control rights. The OLS regression framework uses a questionnaire-survey based corporate governance index (CGI). The study results seem to support agency theory, with a statistically significant inverse relationship between corporate governance quality and the total as well as long term debt ratios