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

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