Moderating Effect of Gender Diversity PDF

Corporate governance practices
and capital structure decisions: the

moderating effect of gender diversity
Mohammad A.A Zaid, Man Wang, Sara T.F. Abuhijleh, Ayman Issa,
Mohammed W.A. Saleh and Farman Ali
Abstract Mohammad A.A. Zaid,

Purpose – Motivated by the agency theory, this study aims to empirically examine the nexus between Man Wang and
board attributes and a firm’s financing decisions of non-financial listed firms in Palestine and how the Sara T.F. Abuhijleh are all
previous relationship is moderated and shaped by the level of gender diversity. based at the School of
Design/methodology/approach – Multiple regression analysis on a panel data was used. Further, we Accounting, China Internal
applied three different approaches of static panel data ‘‘pooled OLS, fixed effect and random effect.’’ Control Research Center,
Fixed-effects estimator was selected as the optimal and most appropriate model. In addition, to control
Dongbei University of
for the potential endogeneity problem and to profoundly analyze the study data, the authors perform the
Finance and Economics,
one-step system generalized method of moments (GMM) estimator. Dynamic panel GMM specification
was superior in generating robust findings. Dalian, China. Ayman Issa
Findings – The findings clearly unveil that all explanatory variables in the study model have a significant is based at the School of
influence on the firm’s financing decisions. Moreover, the results report that the impact of board size and Accounting, Dongbei
board independence are more positive under conditions of a high level of gender diversity, whereas the University of Finance and
influence of CEO duality on the firm’s leverage level turned from negative to positive. In a nutshell, gender Economics, Dalian, China.
diversity moderates the effect of board structure on a firm’s financing decisions. Mohammed W.A. Saleh is
Research limitations/implications – This study was restricted to one institutional context (Palestine); based at the Department of
therefore, the results reflect the attributes of the Palestinian business environment. In this vein, it is Accounting Information
possible to generate different findings in other countries, particularly in developed markets. System, Palestine
Practical implications – The findings of this study can draw responsible parties and policymakers’ Technical University,
attention in developing countries to introduce and contextualize new mechanisms that can lead to better Tulkarm, State of Palestine.
monitoring process and help firms in attracting better resources and establishing an optimal capital
Farman Ali is based at the
structure. For instance, entities should mandate a minimum quota for the proportion of women
School of Accounting,
incorporation in boardrooms.
China Internal Control
Originality/value – This study provides empirical evidence on the moderating role of gender diversity on
the effect of board structure on firm’s financing decisions, something that was predominantly neglected Research Center, Dongbei
by the earlier studies and has not yet examined by ancestors. Thereby, to protrude nuanced University of Finance and
understanding of this novel and unprecedented idea, this study thoroughly bridges this research gap Economics, Dalian, China.
and contributes practically and theoretically to the existing corporate governance–capital structure
literature.
Keywords Corporate governance, Capital structure, Leverage, Board characteristics, Agency theory,
Gender diversity
Paper type Research paper
1. Introduction
Received 1 August 2019
In the contemporary business environment, there is a plausible consensus among Revised 15 May 2020
Accepted 5 June 2020
researchers and practitioners about the significant role of good corporate governance (CG)
policies in an organization’s success. In this context, corporate performance and survival Conflict of interest: The authors
declare that they have no
are affected by CG practices. In particular, countries that have implemented good CG conflict of interest.
DOI 10.1108/CG-11-2019-0343 VOL. 20 NO. 5 2020, pp. 939-964, © Emerald Publishing Limited, ISSN 1472-0701 j CORPORATE GOVERNANCE j PAGE 939
mechanisms generally experienced enormous growth in the corporate sector and therefore
attract more capital (Ahmed Sheikh and Wang, 2012). The great breadth and depth of
CG–capital structure literature is a hint of the intrinsic role that CG practices can play in
constituting corporate capital structure-related decisions. According to Aman and Nguyen
(2013) and Mande et al. (2012), entities are expected to use from better governance by
being able to access funding “debt creation” at a lower cost and in larger amounts. In the
strict sense of the word, good governance mechanisms are more likely to dilate greater
confidence among debtholders that the company will not make detrimental decisions that
hurt their interests.
Considering the above arguments, managers of entities operating under poor CG incline to
maximize their own utilities. Hence, according to Morellec (2004), self-interested managers
who follow personal objectives may prefer less debt than optimal, because debt can be
used as a disciplinary to restrain mangers from the opportunistic use of the available cash.
In the same direction, it is often assumed that executive managers will pursue self-
interested operating strategies that benefit themselves at the expense of the firm’s
shareholders and bondholders (Bradley and Chen, 2011), which eventually leads to
magnify the agency conflict. In this vein, the effectiveness of the board of directors can take
a leading role in mitigating the agency conflict (Kumar, 2015). Incontestably, a better board
of directors reinforces the monitoring functions by augmenting the right incentives to make
rational and good decisions and deterring opportunistic actions that damage firm reputation
and value. As a consequence, it seems arguably reasonable to hypothesize that board of
directors’ effectiveness affects the managers’ decision-making process (Das, 2014).
Therefore, it is no surprise that firms with more sophisticated boards decrease the
investment risk and attract more capital. Thereby, we build the first argument that the board
of directors’ attributes may play a strikingly conspicuous role in shaping the firm’s capital
structure choices.
A stream of prior studies emphasizes that CG, particularly the role of board structure, is vital
in maintaining shareholders’ confidence, whose loyalty can assist in the realization of high-
level financial performance and market growth (Bonn et al., 2004; Hermalin and Weisbach,
1991; Jackling and Johl, 2009). In this vein, numerous scholarly articles have examined
different CG practices that affect the patterns and trends of firm performance (Ciftci et al.,
2019; Pillai and Al-Malkawi, 2018; Mardnly et al., 2018; Paniagua et al., 2018; Joh, 2003;
Core et al., 1999; Darko et al., 2016). Furthermore, preceding literature on board of directors
has theoretical and empirical evidences on the systematic relationship between board
effectiveness and cost of borrowing (Lorca et al., 2011; Hashim and Amrah, 2016; Ghouma
et al., 2018; Usman et al., 2019).
Additionally, a vast array of the previous literature has recognized different drivers of capital
structure. Nevertheless, so far, the immense majority of research efforts have been devoted
to investigating the influence of firm-specific and tax-related determinants, including but are
not limited to the effects of earnings volatility, non-debt tax shields, growth, industry
classification, size and profitability on the optimal capital structure (Titman and Wessels,
1988; Chen, 2004; Karadeniz et al., 2009; Ahmed Sheikh and Wang, 2011; Bevan and
Danbolt, 2002; Noulas and Genimakis, 2011; Czerwonka and Jaworski, 2019). Moreover,
comparatively few previous research, mostly in developed markets, have examined the
impact of CG on the firm’s capital structure (Dimitropoulos, 2014; Pindado and de La Torre,
2011; Hewa Wellalage and Locke, 2015; Granado-Peiro and Lo pez-Gracia, 2017).
Contrariwise, a limited number of prior scholarly articles have been performed within
developing countries (Wen et al., 2002; Ahmed Sheikh and Wang, 2012). According to the
aforementioned discussion, so far, there is an absence of extensive research efforts about
how CG practices affect a firm’s financing decisions. Besides that, the existing findings are
still controvertible, and the solid debates remain scarce and unsatisfactory.
PAGE 940 j CORPORATE GOVERNANCE j VOL. 20 NO. 5 2020

The board of directors plays an eminent role in solving the agency problem between
shareholders and top management (Yoshikawa and Phan, 2005). According to Fama and
Jensen (1983a), the board’s main function is monitoring top management actions on behalf
of shareholders. However, the board of directors is not an effective device for decision
control unless it imposes limits on the discretionary decisions of the individual top
managers. As a consequence, empirical evidence has indicated that the board of directors
has the authority to set the most appropriate financing policies for business continuity. For
instance, Klein (1998) reveals that board composition affects the firm’s financing options. In
this regard, it is undoubtedly that the inefficient and sketchy CG mechanisms provide
opportunities to managers to personalize firm’s financing decisions.
Moreover, most of the contemporary prior studies that analyze the CG–capital structure
relation have been restricted to examine the direct relationship and have not considered the
“moderating effect” of other dimensions. Therefore, it is worthwhile to study what was
heretofore neglected by previous scholars and extract new insights on capital structure
beyond the narrow perspective. In this context, Alves et al. (2015) report that board size can
be related to capital structure in complex models, and further research is required to
explore these complexities. Thereby, the current study selects gender diversity as a
moderator variable, which may help to open the black box between CG and capital
structure. Several researchers have provided strong evidence that gender diversity has an
effect on corporate boards’ efficiency. For instance, Usman et al. (2019) contend that the
presence of women on the boardroom is linked to company’s cost of debt. The results
unveil that firms with high level of gender-diverse boards can borrow at lower cost.
Notwithstanding, the role of the female directors in firms’ decision-making process is not
completely comprehended. In this sense, the presence of women on the board contributes
in improving the level of good governance, which, in turn, enhances the effect of other CG
dimensions on strategic decisions, including capital structure. The second argument of this
study was built as the board of directors’ attributes are more likely to influence the firm’s
capital structure under the presence of “women on the boardroom.” More precisely, the
effect of the board of directors on the financing decisions is contingent on the interaction
with gender diversity.
This empirical study contributes to both theory and practice by closely analyzing how board
structure dimensions influence a firm’s financing decisions:
䊏 First, to the best of our knowledge, this is the only empirical study that analyzes the
moderating effect of gender diversity on the nexus between board attributes and firm’s
financing decisions. More explicitly, the existing literature on capital structure has been
struggled to provide cogent and clear view about the vital role of CG in shaping the
firm’s capital structure. Additionally, the crushing majority of research efforts have been
devoted to examining the direct relationship with ignoring the indirect methods such as
modeling the moderating variables. Hence, it seems plausible to assume that analyzing
an indirect model “moderating effect” is highly required to extract solid results.
䊏 Second, this study presents a novel theoretical contribution that the effect of board
dimensions on corporate capital structure will be clearer when they interact with other
CG aspects such as gender diversity.
䊏 Third, although the existing literature provides several studies on CG–capital structure,
the findings are still strikingly contradictory. To support this, a more recent study
conducted by Ji et al. (2019) articulates that finance literature has irreconcilable views
on the nexus between CG and capital structure. Therefore, this study expands the
current debate by diving deep with an indirect method “moderating role of gender
diversity” to endorse and support the intimate relationship between board structure
dimensions and firm’s financing decisions.
VOL. 20 NO. 5 2020 j CORPORATE GOVERNANCE j PAGE 941

In light of the foregoing, this empirical study mainly purposes to pursue these principal
objectives:
䊏 first, to investigate how board characteristics affect a company’s capital structure
decisions; and
䊏 second, to examine the moderating effect of gender diversity on the above-mentioned
relationship.
To achieve these key objectives, we construct a panel data set of the non-financial listed
firms on the Palestine Stock Exchange (PEX). The empirical evidence elucidates a robust
positive relation, which is in alignment with entrenched assumptions under the agency
theory perspective for explaining the logic behind the firm’s capital structure decisions.
Moreover, we also illustrate that the study findings are controlled for the endogeneity
dilemma. In particular, the results unveil that firms with an effective board of directors’
regimen are more likely to reflect a higher leverage level. Besides, the results support the
argument that the presence of female members on boardroom moderates and shapes the
association between board characteristics and corporate capital structure in a positive and
significant manner.
The remainder of this paper is organized as follows. Section 2 displays a review of the prior
literature. This is followed by a description of the theoretical framework and hypotheses
development in Section 3. The sample, data collection, variables definitions and the
empirical model are presented in Section 4. The subsequent section shows our empirical
results and discussion. The conclusions, limitations and recommendations are given in the
final section.
2. Literature review
In more recent times, several scholars have focused on analyzing the systematic relation
between CG practices and capital structure decisions. Boards of directors must hold
distinct requirements regarding their structure to running their duties constructively and
meaningfully. In this instance, relevant empirical scholarly articles indicate that the
effectiveness of boards of directors depends highly on their characteristics, which, in turn,
affect other accounting and finance matters such as firm’s a capital structure. Accordingly,
to examine this deep-rooted issue, we must critically and carefully review the relevant prior
studies.
Empirically, a colossal array of earlier studies has been performed by professional bodies
and academicians to analyze the close relation between board of director’s attributes and
corporate capital structure. For example, Kieschnick and Moussawi (2018) investigate the
influence of firm age changing on the nexus between CG and firm’s capital structure
choices. The results show that the impact of firm age on how much debt a firm uses is
essentially because of the interaction between firm age and its CG system. A contemporary
study conducted by Ji et al. (2019) reveals that better governance minimizes the incentives
of executive managers in choosing the leverage level. Beyond this, the findings indicate
that the interactions of diversification and CG (i.e. diversified CG) have a negative and
statistically significant coefficient on the financial leverage, implying that a sophisticated
governance mitigates the leverage level in diversified enterprises. Another recent study
conducted by Azmi et al. (2019) on the US market using a data set comprising constituents
of the Dow Jones Islamic Index for the period 2006–2015 articulates that better-governed
firms carry less debt and encounter limited agency problems. According to Fosberg (2004),
entities with dual leadership (i.e. separation between CEO and chairman) were effective in
increasing the level of debt in corporate capital structure. However, the results indicate a
weak positive relationship.

In the European context, Dimitropoulos (2014) articulates that strong CG mechanisms can
result in a reduction in the level of leverage and hence reducing the risk of financial
instability. Mehran (1992) points out that because there is a conflict of interests between
managers and shareholders, managers may make financial decisions such as debt-equity
choices that are suboptimal from the shareholder’s viewpoint. A study performed by
Anderson et al. (2004) reveals that firms with large independent boards are associated with
lower cost of debt financing, implying that a firm’s board is an important element of the
financial accounting process. Berger et al. (1997) point out that the leverage level will be
lower when the CEO does not face strong monitoring from the board of directors or major
stockholders. Elmagrhi et al. (2018) document that there is a lack of empirical evidence
relating to the influence of board gender diversity on corporate capital strucutre. From an
analytical realm, their results show that boards with high proportion of gender diversity tend
to use less debt. In the same direction, Cole (2013) asserts that female-owned enterprises
use less leverage than male entreprises. Besides, Faccio et al. (2016) emphasize that
entities runned by female CEOs have lower leverage level than otherwise similar entities
runned by men CEOs.
Furthermore, Jiraporn et al. (2012) find a robust inverse nexus between CG quality and
firm’s leverage level. To gain further insights, this result is consistent with the substitution
hypothesis. This hypothesis posits that companies that are better governed carry less debt
and encounter fewer agency cost. One plausible reason for this argument could be that
weakly governed firms tend to establish a solid reputation for not expropriating wealth from
owners and signal this datum to the market where they are working. One way to do this is to
carry more debt. The rational basis here is that fixed and regular payments can effectively
minify free cash flow in management’s hands and therefore the amount of cash available to
be expropriated. Similarly, Saona et al. (2019) contend that when governance indicators
ameliorate, companies are more willing to not have debt in their capital structure.
Although a large body of evidence demonstrates the nexus between CG and capital
structure in developed countries, it is no surprise that such efforts are still relatively minimal
in developing markets. From a cross-countries studies context, Chow et al. (2018)
emphasize that CG mechanisms act as effective devices to curb the excessive use of
leverage during times of high volatility. Ahmed Sheikh and Wang (2012) report that high-
quality governance augments the firm performance by reducing the cost of funds.
Moreover, the authors report that both board size and board independence play a
paramount role in magnifying the total debt ratio. Likewise, Abor (2007) indicates that large
boards incline to adopt high debt policy to boost the firm value.
Another study conducted by Wen et al. (2002) on the Chinese listed firms between 1996
and 1998 found that board compensation and the CEO tenure have a significant negative
impact on financial leverage. Contrariwise, board size and fixed CEO compensation are
statistically insignificant. Butt and Hasan (2009) articulate that board size and managerial
ownership are negatively and significantly correlated with debt to equity ratio. A more
recent study conducted by Bajagai et al. (2019) show that CEO duality and board
composition have a positive and significant influence on capital structure. In the same
context, Bokpin and Arko (2009b) denote that CEO duality has a weak positive relationship
with financial leverage. The authors attribute this result to the argument that entrenched
CEOs prefer to finance the entity by using debt capital rather issuing new equity. On the
contrary, Kyereboah-Coleman et al. (2006) contend that CEO duality has an inverse
influence on the short-term leverage.
In the Arab sphere context, the CG–capital structure literature is extremely scarce and
unsatisfactory. For example, Bin-Sariman et al. (2016) note that financing decisions are
influenced by the internal mechanisms of CG. Hussainey and Aljifri (2012) articulate that
institutional shareholders are the key CG dimensions that significantly drive capital structure
strategies in the UAE, whereas board size has not significant effect on firm’s capital

structure. Despite the voluminous CG–capital structure literature worldwide, Palestine still
lacks a lot of research in this regard, and the problematization of the subject is still under
research and in its infancy. The only study that has considered CG and capital structure in
the Palestinian listed companies was performed by Daraghma and Alsinawi (2010).
Nevertheless, they did not examine the effect of CG practices on capital structure. On the
contrary, they investigated the effect of these two mechanisms on the firm’s performance.
3. Theoretical framework and hypotheses development

3.1 Theoretical framework
Nowadays, the concept of capital structure is consistent with numerous theories, including,
but not limited to, the pecking order theory, trade-off theory, free cash flow theory and
agency theory (Mehran, 1992; Du and Dai, 2005; Reddy and Locke, 2014; Alves et al.,
2015; Jensen, 1986). According to the pecking order theory, firms face a tactical choice to
finance their investments. In this regard, due to the adverse problem, companies prefer
internal “retained earnings” to external finance. When outside funds are necessary,
companies consider that debt is a better deal than equity financing because of lower
information costs associated with debt issues (Myers, 1984; Myers and Majluf, 1984). The
trade-off theory posits that a value-maximizing company will follow an optimal capital
structure by taking into account the marginal costs and benefits of each additional unit of
financing, which, in turn, catalyze firms to opt the financing form that equates marginal costs
and benefits (Tong and Green, 2005). The benefit of debt is the tax advantage of interest
payments (Miller, 1977), while the cost of debt is financial distressed costs such as the
costs of bankruptcy (Kraus and Litzenberger, 1973).
Moving to the free cash theory, Jensen (1986) denotes that free cash flow (FCF) is the cash
flow in excess of that required to fund all projects that have positive net present values
(NPVs). Hence, having substantial free cash flow would lead to increase the conflict
between shareholders and managers, implying that top management could engage in
unnecessary and inefficient investments when there is too much FCF. In other words, when
there is an overabundant FCF, managers incline to invest this superfluous in new projects,
even if they anticipate a negative NPV (Park and Jang, 2013). As a result, the FCF theory
presumes that “debt creation” presents, in essence, legal obligations that have to be met by
management and therefore prevents executive managers from overinvestment using the
firm’s financial resources. In this vein, Brush et al. (2000) emphasize that it is not surprising
that a weak CG will generate inefficiency in the allocation of FCFs because the firm’s board
of directors under such circumstances working in management’s interest favor at the
expense of stockholder’s wealth.
From the agency theory point of view, a relationship appears between two parties when
one, the agent “managers,” designated by others, the principal “shareholders,” to do acts
on behalf. Under such conditions, a potential conflict of interest arises because there is a
divergence in goals and desires between the two parties. In this light, a seminal article
conducted by Jensen and Meckling (1976) signifies that a firm’s capital structure is shaped
according to the agency cost that stems from the agency conflict. This agency cost is likely
to be exacerbated in the existence of substantial FCF in the firm (Jensen, 1986). From the
agency theory ideology, debt creation mitigates the agency costs of FCF by reducing the
cash flow “surplus” available for spending in managers’ hands (Kochhar, 1996). In this
sense, debt financing can restrain overinvestment behaviors. Hence, to address the agency
problem, Kester (1986) argues that an increase in financial leverage would sufficiently
alleviate the agency costs because the top management has a legal obligation to pay off
debt with interest. Berger and Di Patti (2006) state that the sources of firm capital may help
to alleviate and attenuate the agency cost. In the strict sense of the word, high leverage
level can reduce agency costs of outside equity and therefore increase the value of the firm
by curbing and inducing executive mangers to act in the best interest of shareholders. In a

nutshell, corporate financing policies are strongly affected by the agency conflict (Mande
et al., 2012; Myers and Majluf, 1984).
Notwithstanding, leverage may mitigate the agency costs of outside equity; however, the
adverse effect may also occur for the agency cost stemming from the conflict between
shareholders and debt holders (outside debt). More explicitly, when the leverage level
becomes relatively high, more agency cost will be generated to control the potential risk of
financial distress and bankruptcy (Berger and Di Patti, 2006). Briefly, the underpinnings of
the agency theory elucidate the notion of agency conflict within a firm capital structure by
determining the optimal leverage level.
Although the pecking order, trade-off and FCF are the main theories explaining how
companies choose their financing sources, we adopt the agency theory as one of the most
cited theories used by prior researchers in illustrating the nexus between CG dimensions
and a firm’s capital structure (Chow et al., 2018; Berger et al., 1997; Jiraporn and Gleason,
2007; Bonn et al., 2004). More importantly, the idea of CG mechanisms was originated from
the agency theory; hence, adopting this theory as a theoretical cornerstone in our study will
provide in-depth insights on the close link between CG and corporate capital structure.
Consequently, we build our argument that good CG mechanisms result in managing
resources more efficiently and alleviating the default risk, which, in turn, lowers the cost of
debt (Bhojraj and Sengupta, 2003). Thereby, an efficient governance enhances the firm’s
ability to gain more external funds.
3.2 Hypotheses development
3.2.1 Board size. It has been strictly emphasized that board size is an important
determinant of CG effectiveness (Lipton and Lorsch, 1992). In the same direction, Said
et al. (2009) argue that boardroom size is demeed one of the most crucial dimensions of CG
agenda in overseeing whether corporate activities are adequately managed by their agent.
Moreover, the boardroom, at the apex of the internal control mechanism, has the final
responsibility for the functioning of the firm (Jensen, 1993). In this context, the agency
theory postulates that the larger board size has a greater opportunity to minimize the
agency costs. From the capital structure philosophy, creditors perceive that companies with
large board size are more likely to effectively monitor their operations (i.e. a greater number
of guards) and reduce the agency conflict, which, in turn, affect their financial stability. In
the same manner, Anderson et al. (2004) affirm that a larger board size has a greater
monitoring on the financial accounting process. Therefore, companies with larger boards
enjoy a lower cost of debt financing. Furthermore, Cheng and Courtenay (2006) and Alves
et al. (2015) argue that a large board of directors alleviates information asymmetry and
therefore facilitates firms to use more long-term debt and choose the best financing way.
Along the same line, Abor (2007) articulates that large boards are well-anchored, and
hence, through a stringent surveillance, they tend to embrace a high debt policy to
maximize the firm value. Contrarily, Berger et al. (1997) emphasize that large boards incline
to impose more pressure on the executive management to pursue lower leverage to boost
firm performance.
In line with the aforementioned holistic views, the empirical literature displays contradictory
findings on the link between board size and debt financing. For instance, a stream of prior
studies confirmed that board size is positively associated with debt financing (Abor, 2007;
Kyereboah-Coleman et al., 2006; Jensen, 1986; Wen et al., 2002). Conversely, Berger et al.
(1997) find that leverage is lower when boardroom is comprised from a large number of
members. Similarly, Usman et al. (2019) report that a large board size is correlated with a
high cost of debt, and therefore, a conclusion can be drawn that the cost of ineffective
communication that is associated with larger boards outweighs their benefits. Consistent
with the agency theory, we argue that the larger board size is more likely to be cautious and

vigilant over the opportunistic and detrimental management actions, and therefore,
creditors will perceive that firms with a large board size have the ability to maintain their
reputation and value. From this perspective, the cost of debt will be lower for larger boards,
and hence, they catalyze firms’ access to financing. Based on the theoretical arguments
and empirical literature reviewed above, the first hypothesis is formulated as follows:
H1. There is a positive relationship between board size and the firm’s leverage level.
3.2.2 Board independence. From the agency theory viewpoint, a high proportion of outside
directors on the board is assumed to strengthen the firm’s ability to protect itself against
uncertainties, particularly bankruptcy. In this regard, independent boards may enhance
transparency and further attract the capital needed for growth opportunities (Chen and Hsu,
2009). Furthermore, Ahmed Sheikh and Wang (2012) articulate that a high level of outside
directors enables to monitor management actions more closely and takes appropriate
governance actions. In the same vein, Bhojraj and Sengupta (2003) contend that boards
with more outside directors have lower bond yields and higher credit ratings on new debt
creation, and thereby, they minify the cost of debt-making.
Although outsiders and insiders have their merits and demerits, prior literature reveals that
outsider-dominated boards are more favorable to meet the varied interests of stakeholders
(De Andres et al., 2005; Ahmed et al., 2006). In this respect, the presence of independent
directors on the boardroom serves as a protective tool to maximize the guarantee that firm’s
management acts in the best interest of its stakeholders (Zaid et al., 2020a), including
creditors as one of the most sensitive groups of the external stakeholders. Under such
scenario, lenders perceive that boards with a high level of independent members have a
strong incentive to meet their various expectations. In a more precise language, a higher
level of board independence has an influential and superior role in monitoring top
management and restricts the unnecessary manager’s actions. As a consequence, we can
argue that the trustability of independent directors as an effective internal control body in
the eyes of lenders creates a collaborative working environment with regard to “debt
creation,” and therefore, it enhances the firm’s access to financing, particularly when the
management is willing to reinforce the firm value.
In line with the aforementioned arguments, literature reports somewhat mixed results. For
instance, Bokpin and Arko (2009b) and Jensen (1986) find a positive relationship between
the number of outside directors and financial leverage. Moreover, Usman et al. (2019)
report that firms that have independent boards pay less for debt financing. On the contrary,
Wen et al. (2002) and Dimitropoulos (2014) reveal that board independence has a negative
nexus with external financing. Although previous research reports somewhat mixed
findings, we develop the second hypothesis on board independence in line with the
perspective of the agency theory as follows:
H2. There is a positive relationship between the proportion of independent non-executive
directors and the firm’s leverage level.
3.2.3 CEO duality. A stream of prior empirical studies has divulged that the nature of board
structure typology (CEO duality) has a nexus with the firm’s financing decisions. In this
context, the CEO has the executive function to handle the firm’s operations; whereas the
chairman has the responsibility to govern the firm and set the strategic objectives. Hence,
CEO duality occurs when a firm’s CEO serves at the same time as the chairman in the
board (Peng et al., 2007). Within this scope, there is an ongoing debate regarding
the influence of the dual role of the CEO on the firm’s capital structure. Zaid et al. (2019)
articulate that a combination of the CEO and chairman raises the risk of abusing the
authority and makes distorted managerial decisions. Therefore, the assigning of both tasks
to the same person might debilitate the control process and impact the firm performance
negatively (Duru et al., 2016); as a result, CEO duality affects the firm’s reputation “debt-
paying ability” in the eyes of lenders.

From a theoretical ambit, the CEO with dual positions may increase the agency cost
because the monitoring and executing functions are in one hand at the same time. More
precisely, Ahmed Sheikh and Wang (2012) argue that the agency theory suggests that
conflicts between management and shareholders can be debilitated by separating the roles
of management (CEO) and control (chairman). The combination of decision management
and decision control functions in one individual enfeebling the effectiveness of the
monitoring process and therefore, increases the agency problem (Fama and Jensen,
1983b). Consequently, professional lenders will not invest in such entities because they
have a high perception level of the CEO duality-related risks. On the other hand, Mande
et al. (2012) point out that CEO duality may improve the firm’s value, as the CEOs are highly
skilled and knowledge-intensive persons. In this vein, we can argue that firms with a unitary
leadership structure (i.e. the CEO serves as board chair) are likely to work with an optimal
amount of debt in their capital sturutre. However, firms with a dual role are also likely to
experience inferior financial performance and risky financing behavior. In a nutshell,
Brickley et al. (1997) document that there is no single exemplary structure of the firm’s
leadership because both separation and role duality phenomena have their own benefits
and costs. Thereby, the separation will be beneficial for some firms, while duality is likely to
be valuable for others.
However, the empirical evidence on the direction of the association between CEO duality
and capital structure is mixed. For example, Abor (2007) and Dimitropoulos (2014) unveil
that companies with CEO duality have a higher leverage level. Further, Usman et al. (2019)
provide empirical evidence that firms whose CEOs are also chairs of the board enjoy a
lower cost of debt. Contrarily, Kyereboah-Coleman and Biekpe (2006) find that when the
CEO serves also as board chairperson, less debt is used. Additionally, Fosberg (2004)
articulates that firms with a two-tier leadership structure (i.e. when the board chair and CEO
positions are not held by the same person) have more debt in their capital structure.
Considering the above discussion, we formulate the next hypothesis on CEO duality in line
with the agency theory as follows:
H3. There is a positive relationship between the separation of roles of CEO and chairman
and the firm’s leverage level.
3.2.4 The moderating role of gender diversity. In more recent times, it has been
acknowledged that diversity in the workforce is an issue garnering a significant amount of
attention both in academia and in the popular press (Farrell and Hersch, 2005). In this
sense, the crushing majority of the financial literature reveals a negative nexus between
boardroom gender diveristy and capital structure decisions. Nevertheless, some
disagreement and ambivalence still persist in literature. From the gender diversity doctrine,
Schubert (2006) and Maxfield et al. (2010) argue that women are more risk-averse than their
men counterparts. Denoting that, females make low-risk decisions, whereas men make
high-risk decisions. Most notably, it is undoubtedly that the association between risk
aversion and capital structure has not yet well-investigated, and it still in its infancy,
particularly in developing countries. Schicks (2014) reports that male borrowers have a
higher over-indebtedness risk than their women counterparts. One plausible reason for this
result could be that the risk aversion doctrine may help to eschew financing risks, therefore
making women use less debt.
On the flip side, Virtanen (2012) indicates that female board members are more likely to
take active roles on the boardroom than their male counterparts. According to Ruigrok et al.
(2007), the female directors can contribute to the board performance by their pervasive
influence on the decision-making process. In the cost of debt context, it has been proven
that firms with gender-diverse boards have a lower cost of debt because the presence of
women directors on the boardroom alleviates the managerial opportunistic behavior and
information asymmetry (Usman et al., 2019), which, in turn, affects the lenders’ perceptions
about the borrower’s ability to pay off the debt with interest. Elmagrhi et al. (2018) indicate

that firms with gender/ethnic representation may need to use more debt to mitigate
opportunistic behavior of managers that may steem from potential weak managerial
monitoring and sketchy CG. Moreover, Jensen and Meckling (1976) contend that the value
of the entity will rise with the amount of debt financing. More precisely, the existence of tax
advantage (tax incentives) of interest payments stimulates debt financing to reduce tax
payments and therefore raise the firm value. In this direction, firms with a high level of
gender diversity incline to use more debt, particularly if these firms are interested in rising
their value. One plausible reason for this argument could be that debt financing is
inexpensive under the presence of women on the boardroom, which constitutes a catalyzed
factor to carry more debt. In the same manner, Dhaliwal et al. (2006) and Baxter (1967)
point out that tax benefit (tax-deductible expense) from debt mitigates the cost of equity
and boosts market value. Along the same lines, Baumol and Malkiel (1967) contend that
leverage is likely to increase the firm value (reduce the cost of capital) over certain ranges
of leverage.
From an agency theoretical viewpoint, a board with more diversity tends to be a better
monitor on managers’ actions because diversity increases board independence (Carter
et al., 2010;Carter et al., 2003). Hence, the way board of directors characteristics influence
the firm’s capital structure may be affected by the level of female representation on the
boardroom. Moreover, board members may be selected based on their gender diversity,
and this selection criterion may affect the financing decisions. Thereby, the influence of
board characteristics such as board size, board independence and CEO duality on the
firm’s capital structure will be greater when the board of directors is comprised of a
balanced number (equal distribution) of female and male members. The intuition behind this
presumption is that the magnitude of debt cost is inextricably connected with the firm
reputation “debt-paying ability,” and the latter is intimately tied with board effectiveness.
Accordingly, the influence of the board of directors will be greater when there is an
evenness of the distribution of board members in terms of gender because the equal
distribution of male and female ameliorates the board effectiveness degree.
Drawing on the arguments above-stated, we theorize that the presence of women on the
board has a potent influence on the board effectiveness by monitoring top management
actions and board strategic decisions. Therefore, the firms’ debt decisions will be derived
accordingly. More concretely, good board characteristics may help firms in dealing with
their financing policies in a more effective manner, when there is an evenness of the
distribution of board members in terms of gender. Congruent with the agency theory, we
develop the following hypotheses:
H4a. More gender diversity will strengthen the positive relationship between board size
and the firm’s leverage level.
H4b. More gender diversity will strengthen the positive relationship between board
independence and the firm’s leverage level.
H4c. The moderating role of gender diversity on CEO duality has a positive influence on
the firm’s leverage level.
4. Research design and methodology

4.1 Sample and data collection
Data on study variables were obtained from companies’ annual reports listed on the PEX
over a six-year period (2013–2018). The selection of these years was motivated by the
availability of data over the study period. Furthermore, during this period, listed companies
in Palestine started to give more attention to compliance with CG principles. To develop our
sample, financial listed firms have been excluded because they have particular attributes of
accounting system, and they differ organizationally and conceptually from other firms.

The research population was 48 listed companies on PEX as of December 31, 2018. After
excluding the financial listed firms, the final sample consists of 34 non-financial. A total of
204 observations were made for six years. Companies with missing annual reports during
all study period were dropped. As a result, the number of firms that formed the final sample
was reduced to 33 companies. Consequently, yielding a final sample of 198 firm-years
observations represents firms with complete and testable data.
4.2 Variables definitions and measurements
4.2.1 Dependent variable. The dependent variable in this study is the capital structure.
Hence, to meticulously measure the dependent variable and fulfill the purposes of the
study, a total leverage “total debt over total assets” (LEV) was adopted as a proxy of the
dependent variable (Ahmed Sheikh and Wang, 2011;Chow et al., 2018).
4.2.2 Explanatory variables. To precisely determine the ambiguous relationship between
CG and firm’s capital structure, we included board characteristics variables as follows:
䊏 First, board size (BSIZE) represents the number of board members (Mande et al., 2012;
Zaid et al., 2020a;Saleh et al., 2020).
䊏 The second variable is board independence (BIND), which was calculated as the
proportion of independent directors on the boardroom to the total number of directors
(Zaid et al., 2019;Zaid et al., 2020b).
䊏 Third, the CEO duality (DUAL) variable, which was measured as a dummy variable
coded 1 if the board chairman serves as CEO at the same time; 0 otherwise (Chow
et al., 2018;Mande et al., 2012).
4.2.3 Moderator variable. In this empirical study, we made a distinction between direct and
indirect methods in analyzing the nexus between board attributes and firm’s financing
decision. In this sense, the effect of gender diversity has been investigated as a moderator
variable on the aforesaid relationship. Gender diversity (GEN) was measured as the
proportion of female directors on the board (Fuente et al., 2017; Zaid et al., 2020b)
4.2.4 Control variables. We control for additional variables that are theoretically related to
capital structure. These control variables avoid model misspecification and capture other
factors that may have an impact on the firm’s capital structure options. Based on a profound
review of prior literature (Bokpin and Arko, 2009b; Mande et al., 2012; Chow et al., 2018;
Frank and Goyal, 2009), the capital structure can be influenced by a variety of firm-specific
determinants such as firm size (FSIZE). Larger firms tend to borrow more because they are
more diversified and have a lower default risk (Alves et al., 2015). This variable was
measured as a natural logarithm of total assets. We also control for profitability (ROA). Firms
whose financial performance “profitability” is strong have a greater stability and cash flows;
hence, they may have a lower cost of debt financing (Anderson et al., 2004), which, in turn,
stimulates to have more debt. Profitability was calculated as a percentage of net income to
total assets. It is essential to control for firm age (AGE). The logic in this context is that the
older and more established companies have a higher ability in taking more debt (Bajagai
et al., 2019). This variable was measured as a natural log of the number of years since the
firm’s inception. We also control for growth (GRO). Al-Najjar and Taylor (2008) report that
firms with high-growth rates tend to use less debt to reduce the agency cost that arises due
to high information asymmetry. Growth was measured as a percentage of change in the
natural logarithm of net sales.
It is also important to control for government ownership (GOWN). State-controlled firms are
expected to have an easier access to debt financing (Pöyry and Maury, 2010). The
underlying logic behind this argument is that state-run enterprises have loan guarantees
that enable them to borrow easily (Deesomsak et al., 2004). Government ownership was

measured as a percentage of shares held by the Palestinian government to the total
number of outstanding shares of the firm. Furthermore, the study controls for foreign
ownership (FOWN). The presence of foreign investors in the enterprise ownership structure
is considered a good source of financing for the firms; therefore, it is expected that foreign
ownership may influence the firm’s capital structure decisions (Khasawneh and Staytieh,
2017). Foreign ownership was calculated as the percentage of shares held by foreign
shareholders to the total number of outstanding shares.
Econometrically, Bradley et al. (1984) argue that leverage ratios differ across industries.
Hence, ignoring the control for industry types may give biased results. Accordingly, we
introduce industry type (INDUSTRY DUMMY) to control for industries differences and
reduce such bias. Finally, we control for year fixed effects (YEAR DUMMY) to capture any
variation in the output that exists over time, which reflects macroeconomic fluctuations
(Nguyen et al., 2015).
4.3 Regression model specification

To econometrically analyze the study data set and illustrate how the firm’s financing policies
are affected by CG factors, we empirically used a quantitative analysis in our study using
longitudinal data over a period of six years. In this study, we performed three different
approaches of static panel data; ordinary least squares (OLS), fixed effects and random
effects. Additionally, we implemented the one-step system GMM. Mathematically, the study
regression equation is modeled as follows:
LEVit ¼ b 0 þ b BS it þ b BGit þ g Zit þ h i þ t þ « it (1)
where LEV is the ratio of total debt to total assets for firm i at time t; BS is a vector of board
structure variables; BG is a vector of the interaction between board characteristics and
gender diversity; Z is a vector of firm-level control variables and ownership related
variables; h i is the firm-fixed effects, which is included in the study econometric model to
control for unobservable firm-specific and time-invariant heterogeneity; t is the time-fixed
effects, which is included in the study model to control for unobserved time-variant effects
to all firms in the selected sample; i represents individual dimension (firm); t represents time
dimension (year); e represents the stochastic error term.
According to the discussion above, a detailed model can be expressed as the following
formula:
LEVit ¼ b 0 þ b 1 BSIZEit þ b 2 BINDit þ b 3 DUALit þ b 4 GENit þ b 5 BSIZE GENit

þ b 6 BIND GENit þ b 7 DUAL GENit b 8 FSIZEitþ b 9 ROAit þ b 10 FAGEit
þ b 11 GROit þ b 12 GOWNit þ b 13 FOWNit þ RINDUSTRY DUMMY
þ R YEAR DUMMY þ «
(2)
where the interaction between the three dimensions of board structure and gender diversity
as shown in equation (2) (i.e. (BSIZE GEN), (BIND GEN) and (DUAL GEN)), (i)
represents firm, (t) represents time dimension (years), b 0 is the constant, b 1 to b 13 are the
regression coefficients and e is a vector of the stochastic error term.
5. Empirical results and discussion

5.1 Descriptive statistics
Table 1 reports a summary of descriptive statistics for all variables adopted in the study
model. It is noteworthy that the leverage level LEV varies greatly among Palestinian non-

Table 1 Descriptive statistics
Variable Mean Median SD Min Max
LEV 0.33 0.31 0.19 0.01 0.78

BSIZE 8.76 9.00 2.45 5.00 15.00
BIND 0.88 1.00 0.17 0.46 1.00
DUAL 0.15 0.00 0.36 0.00 1.00
GEN 0.08 0.00 0.07 0.00 0.33
FSIZE 16.83 16.74 1.56 13.51 20.74
ROA 0.02 0.02 0.09 –0.62 0.36
FAGE 1.34 1.32 0.27 0.60 1.86
GRO 0.86 0.00 9.72 –18.42 121.30
GOWN 0.05 0.00 0.09 0.00 0.37
FOWN 0.10 0.00 0.20 0.00 0.64
Notes: LEV ratio of total debt to total assets; BSIZE total number of board members, BIND
percentage of independent directors on the board; DUAL dummy variable coded 1 if board
chairman serves as CEO at the same time, 0 otherwise; GEN proportion of female directors on the
board; FSIZE natural logarithm of total assets; ROA ratio of total return to total assets; FAGE natural
log of the number of years since the firm’s inception; GRO percentage of change in the natural
logarithm of net sales; GOWN percentage of shares held by the Palestinian government to the total
number of outstanding shares of the firm; FOWN percentage of shares held by foreign shareholders
to the total number of outstanding shares
financial listed firms as the minimum is 1% and the maximum is 78%. This enormous
contradiction demonstrates that some firms in the sample are totally disinclined to finance
their assets with debt. Furthermore, the mean value of total debt to total assets ratio is 33%
(median = 31%). Denoting that, on average, 33% of the capital structure of the sampled
firms is from external sources “debt.” The mean value of the board size (BSIZE) variable is
approximately nine members. The minimum board of director’s size was five members,
while the maximum size was15 members. The average level of board independence (BIND)
is 88%. Implying that, on average, most of the board of directors are non-executive
directors in the sample. Additionally, the average CEO duality (DUAL) is 15%, indicating
that, on average, 15% of the sample board’s chairman are CEOs. Finally, the mean value of
the female percentage on the boardroom (GEN) is 8%. Implying that, on average, 8% of the
sample boards’ members are women directors.
5.2 Bivariate analysis

Table 2 presents the findings of the Pearson correlation matrix (Pearson’s r) between the
study variables. As shown in Table 2 below, the level of debt is positively and significantly
associated with board size and board independence variables as follows; board size BSIZE
Table 2 Pearson correlation matrix

VIF Tolerance LEV BSIZE BIND DUAL GEN FSIZE ROA FAGE GRO GOWN FOWN
LEV 1.000
BSIZE 2.05 0.49 0.165 1.000
BIND 1.89 0.53 0.211 0.001 1.000
DUAL 1.82 0.55 –0.206 –0.041 –0.650 1.000
GEN 1.37 0.73 0.273 0.276 0.227 –0.265 1.000
FSIZE 1.36 0.73 0.087 0.278 –0.226 0.144 0.041 1.000
ROA 1.35 0.74 –0.322 0.037 –0.090 0.032 0.065 0.258 1.000
FAGE 1.22 0.82 –0.213 –0.037 –0.352 0.454 0.166 –0.079 0.358 1.000
GRO 1.19 0.84 0.157 –0.090 0.153 –0.196 –0.108 0.031 –0.266 –0.479 1.000
GOWN 1.64 0.61 0.365 0.156 0.113 0.087 0.163 0.203 0.092 0.017 0.034 1.000
FOWN 1.57 0.64 –0.199 0.381 0.043 0.483 0.446 0.175 0.352 0.158 0.078 0.031 1.000

Note: , and correlation statistically significant at the 0.10, 0.05, 0.01 levels, respectively

( r = 0.165) and board independence BIND ( r = 0.211). Whereas, CEO duality DUAL ( r =
0.206). Furthermore, leverage level is positively and significantly linked with the moderator
variable GEN ( r = 0.273). It is apparent from the table that the highest explanatory
variable’s correlation is –0.650 between CEO duality and board independence. Leverage is
also correlated with a variety of firm-specific determinants such as firm size FSIZE,
profitability ROA, firm age FAGE, growth GRO. Besides, government ownership GOWN and
foreign ownership FOWN are associated with the leverage level.
5.3 Multivariate regression findings

In this study, a panel data analysis was performed because the combination of cross-
sectional with time-series can ameliorate the quality and quantity of data in a way that would
be impossible using only one of these two aspects (space or time) (Gujarati, 2009).
Furthermore, to test our hypotheses, a number of diagnostic tests were implemented. The
assumption of no perfect multicollinearity among input variables was checked by using the
variance inflation factor (VIF) and tolerance. As a rule of thumb Marquaridt (1970) and
Gujarati (2009) state that VIF greater than 10 points out serious collinearity. It should be
noted that running the moderated multiple regression analysis “interaction term” has the
potential to generate a high correlation and high value of VIF more than 10. In this respect,
centering variables at their means prior to estimating an interaction in a multiple regression
model helps to attenuate and avoid multicollinearity. As evidenced by Table 2, the VIF
values range from 1.19–2.05 with a mean of 1.55. Hence, multicollinearity is no longer a
serious issue in the regression analysis with mean-centered variables. Additionally, Menard
(1995) indicates that a tolerance < 0.20 is cause for concern and a tolerance < 0.10 reflects
severe collinearity. As shown in Table 2, there is no multicollinearity concern among X’s.
Furthermore, a bivariate analysis was applied using the Pearson correlation matrix.
Multicollinearity is predicted to be “harmful” when the correlation coefficient between two
independent variables exceed 0.8 (Gujarati, 2009). The intercorrelation among explanatory
variables ranged between –0.650 and 0.001, which is below the concern level of 0.8.
In panel data sets, the residuals may be correlated across time and firms, and therefore,
standard errors can be biased and either substantially under- or overestimate the true
variability of the coefficient estimates (Petersen, 2009; McNeish, 2014; Vogelsang, 2012).
Theoretically, to control and deal with these potential problems and to ensure that the
results are not misleading, the standard errors should be clustered in the two dimensions;
firm level (cross-sectional) and time level (time-series) simultaneously (Thompson, 2011;
Albuquerque et al., 2018; Petersen, 2009).
Table 3 reports the results of the multiple regression analysis using the fixed-effects model.
In this regard, to identify the appropriate model of static panel data, we applied a number of
the statistical tests as follows:
䊏 First, incremental F-test is used to determine which model is the best to choose
between pooled OLS and fixed-effects model; the null hypothesis is that all fixed-
effects (FE) constants are zero. The results reveal that the F-test = (17.29; p < 0.01).
Consequently, the null hypothesis is rejected, and therefore, the FE model is more
appropriate than the pooled OLS model.
䊏 Second, the Breusch–Pagan Lagrangian multiplier (LM) test for random effects was
conducted to select between random effects model and pooled OLS. The findings
show a significant p-value of LM test (69.43; p < 0.01). Therefore, the null hypothesis is
rejected. Accordingly, the random-effects (RE) model is better than the pooled OLS
model.
䊏 Finally, the Hausman test was performed to decide between two estimators (FE or
random-effects). The results exhibit a significant p-value of the Hausman test (28.66;

Table 3 Multiple regression results using the FE models
Direct relationship Indirect relationship
Model 1 Model 2
Variables Coefficients t-value Coefficients t-value
Main effects
BSIZE 0.023 2.252 0.019 2.064
BIND 0.324 2.053 0.315 1.957
DUAL –0.191 1.896 –0.206 2.065
GEN 1.691 2.297 1.697 2.086
Moderated effects
BSIZE GEN 0.095 2.881
BIND GEN 1.938 3.210
DUAL GEN 0.843 1.966
Control variables
FSIZE 0.153 2.779 0.176 2.989
ROA –0.212 2.107 –0.215 2.018
FAGE –0.121 0.889 –0.147 1.003
GRO 0.004 0.820 0.003 0.833
GOWN 0.403 2.227 0.431 2.118
FOWN –0.244 3.306 –0.247 4.289
Constant –2.461 1.853 –2.433 1.999
Observations 198 198
Standard errors Clustered Clustered
Adjusted R2 0.2642 0.3118
F-test for FE 17.29
F-statistics (model) 15.83
Hausman test 28.66
Notes: LEV ratio of total debt to total assets; BSIZE total number of board members; BIND
percentage of independent directors in the board; DUAL dummy variable coded 1 if board chairman
serves as CEO at the same time, 0 otherwise, GEN proportion of female directors on the board; FSIZE
natural logarithm of total assets; ROA ratio of total return to total assets; FAGE natural log of the
number of years since the firm’s inception; GRO percentage of change in the natural logarithm of net
sales; GOWN percentage of shares held by the Palestinian government to the total number of
outstanding shares of the firm; FOWN percentage of shares held by foreign shareholders to the total
number of outstanding shares; the estimated coefficients and t-statistics are two-way cluster-robust
with finite sample correction to adjust for arbitrary heteroscedasticity and serial correlation. Further, in
all models, time and firm FE are controlled for. Superscripts , and statistically significant at
0.10, 0.05 and 0.01 levels, respectively
p < 0.10), implying that the fixed-effects estimator is the optimal model. Hence, the
findings of the FE model were taken into account for further discussion below.
The adjusted coefficient of determination (adjusted R2) unveils that the explanatory
variables in our empirical model explained approximately 31% of the variation in the
dependent variable “firm’s debt to assets ratio”. The overall p-value of F-test is statistically
significant (15.83; p < 0.01). Consequently, we can conclude that our econometric model
fits the data better than the intercept-only model.
To minutely identify which board dimensions drive a firm’s leverage level, we run a
regression analysis, where a firm’s debt to assets ratio is regressed on the key attributes of
board of directors directly and indirectly (i.e. moderating effect of gender diversity). With
regard to the multiple regression analyses, the FE results in Table 3 present a positive and
statistically significant coefficient ( b = 0.023; p < 0.05) of board size variable (BSIZE). This
finding implies that the larger board size results in the higher level of debt. Therefore, we
cannot reject H1. The result suggests that firms with large boards have more ability to raise
funds from external sources to maximize the firm’s value. Besides, firms with large board
size reflect wide networks and relationships between their members and external parties
and therefore create good opportunities to have access to external funding sources. In

addition, larger board size is expected to have more capacity for overseeing manager
actions by sharing the duties between its members, hence improving the firm reputation,
which eventually leads to lower the debt cost and influence corporate financing patterns.
This outcome is congruent with the findings of past research (Abor, 2007; Jensen, 1986;
Kyereboah-Coleman et al., 2006; Ahmed Sheikh and Wang, 2012), whereas this finding is
incongruent with Usman et al. (2019), Butt and Hasan (2009) and Berger et al. (1997)
results.
Moving to board independence, the results divulge that board independence variable
(BIND) has a positive and statistically significant coefficient ( b = 0.324; p < 0.05). This
result supports H2, which denotes that the higher level of independent non-executive
directors on the boardroom is the higher level of firms’ debt financing. One plausible reason
for this finding could be that the trustability of independent directors as an effective internal
control body in the eyes of lenders creates a collaborative working environment with regard
to “debt creation” and therefore enhances firms’ access to external financing, particularly
when the management is willing to reinforce the firm value. In a broad sense, the presence
of outside directors on the firm’s board augments the credibility and thus affects the firm’s
reputation “debt-paying ability” in the eyes of financiers, which, in turn, minifies the cost of
debt and makes easy for firms to borrow more. This result is in line with prior research
(Abor, 2007; Bajagai et al., 2019), which evidences that the presence of independent
directors on the company’s boardroom has a positive effect on the firm’s debt financing.
Moreover, this result supports the findings of previous studies (Anderson et al., 2004;
Usman et al., 2019), which declare that the cost of debt financing is inversely related to
board independence level. Whereas, this finding is incongruent with Dimitropoulos (2014)
and Wen et al. (2002) findings.
Moreover, we explore the impact of CEO duality on the firm’s debt financing. We find a
negative and significant coefficient ( b = –0.191; p < 0.1) of CEO duality variable (DUAL).
Our result, therefore, supports H3, which points out that more separation of roles of CEO
and chairman results in more borrowing from external sources. One possible explanation for
this argument could be that combining the CEO and chairman raises the risk of abusing the
authority and making distorted managerial decisions. Therefore, assigning both tasks to the
same person might debilitate the control process and thus affect the firm’s reputation “debt-
paying ability” in the eyes of financier. Under such circumstances, professional lenders will
not invest in such entities because they have a high perception level of the CEO duality-
related risks. This finding is in line with Kyereboah-Coleman and Biekpe (2006) and
Fosberg (2004) who confirm that separation of roles of CEO and chairman has a positive
impact on the firm’s debt level, whereas this result is inconsistent with authors such as Abor
(2007) and Dimitropoulos (2014).
Moving to the moderating effect, it is found that gender diversity not only has a positive and
significant direct impact on firm’s debt level, it also moderates the nexus between board
characteristics and a firm’s debt level. The results in Model 2 in Table 3 expose a positive
and statistically significant effect of the interaction between gender diversity and board size.
The coefficient of the interaction is ( b = 0.095; p < 0.01). Thereby, we accept H4a. This
denotes that when the proportion of female on the boardroom increases, the effect of the
board size on the firm’s debt level will be more positive. This finding could be attributed to
the fact that firms with larger board size have diverse set of knowledge, skills and ideas,
which are highly required in debt creating process, and this diversity will be used in an
effective manner when there is a high proportion of female members on the boardroom. In
addition, the effectiveness of the board of directors is expected to be high when there is a
sufficient number of members with equal distribution of females and males. In this direction,
the cost of debt will be lower, and thus, the firms will borrow more.
With regard to the board independence, the findings in Model 2 unveil a positive coefficient,
as predicted, and significant influence of the interaction between board independence and

gender diversity on firm leverage level. The coefficient of the interaction term is ( b = 1.938;
p < 0.01). This evidence affirms that the effect of board independence on “debt creation” is
more positive under the presence of a high level of gender diversity. Hence, this finding
supports H4b. The logic that stands behind this result could be attributed to the argument
that the firm reputation level is more likely to be affected by the evenness of the distribution
of boardroom members in terms of gender. Therefore, the firm’s financing decisions will
build accordingly. To put it more straightforwardly, the presence of independent directors
on the boardroom serves as a protective tool to maximize the guarantee that the firm’s
management acts in the best interest of lenders. In this regard, the gender-diverse
boardroom will prop this pledge because female members will act also in the best interests
of the creditors. Considering the discussion aforesaid, the cost of debt will be lower,
therefore enabling firms to borrow more, particularly if they are interested in increasing firm
value.
Moving to the CEO duality, the estimated coefficient on the interaction between gender
diversity and CEO duality is positive and statistically significant ( b = 0.843; p < 0.1). More
plainly, the impact of CEO duality was turned from negative to positive. This result can be
inferred that the presence of women on the boardroom can effectively alleviate the CEO
opportunistic behavior and therefore restrict the negative influence of the dual role. Hence,
this finding led us to accept H4c.This denotes that CEO duality has a negative and
significant influence on firm’s debt level when the percentage of women on the board is
equal to zero (i.e. when all board members are men). In contrast, when the proportion of
gender diversity increases, the effect of CEO duality will significantly change from negative
to positive. Furthermore, this finding is supported by the theoretical background, which
argues that the presence of women on the board plays a crucial role in improving the
monitoring role. Accordingly, the credibility level will be improved under the presence of
female members on the board, which, in turn, stimulates the lenders to invest in such firms.
With regard to the control variables, contrary to expectations, we found that firm
performance “profitability” (ROA) and firm age (FAGE), are negatively related to firm’s debt
level. By implication, profitable firms tend to borrow less because they may have a sufficient
amount of money to their operations. Further, the older and more established entities are
less need of taking more debt. Contrariwise, firm size (FSIZE) is positively linked with the
firm’s debt level. This result could be attributed to the argument that larger firms tend to
borrow more because they are more diversified and have a lower default risk (Alves et al.,
2015). In a similar manner, the findings show that growth (GRO) is positively and
insignifcantly related to the firm’s debt level. These findings are consistent with a number of
prior research (Kyereboah-coleman and Biekpe, 2006; Wen et al., 2002; Ahmed Sheikh and
Wang, 2012; Hussainey and Aljifri, 2012). Furthermore, the results divulge that companies
with the state as controlling shareholder (GOWN) have a higher leverage level. This result is
in alignment with Li et al. (2009) and Pöyry and Maury (2010) who confirm that state-run
firms have loan guarantees that enable them to borrow easily. On the contrary, foreign
ownership (FOWN) is found to be negatively and statistically significant connected with firm
leverage level. This result is congruent with (Khasawneh and Staytieh, 2017) findings,
whereas inconsistent with (Bokpin and Arko, 2009a) results.
5.4 Robustness checks

This sub-section presents the findings of additional tests to provide assurance that the
study results are robust. From an econometric framework, Brown et al. (2011) denote that
endogeneity is a serious issue in the relationship between a CG mechanism and other
matters of accounting and finance. Thereby, to alleviate the detrimental effect of
endogeneity, we performed panel data FE regression, which can control for unobservable
firm heterogeneity (Chi, 2005) and partly eliminate the endogeneity issue (Wooldridge,
2010), as apparent from Table 3. In this regard, to control for different causes of the

Table 4 Empirical results reported for system GMM and lagged model
GMM Model Lagged IV
Coefficients t-value Coefficients t-value
Main effects
LEV (t – 1) 0.503 2.538
BSIZE 0.071 2.426 0.058 2.074
BIND 0.229 1.782 0.382 1.926
DUAL –0.311 1.720 –0.501 2.066
GEN 1.232 2.486 1.258 2.175
Moderated effects
BSIZE GEN 0.349 2.827 0.366 3.967
BIND GEN 0.574 2.064 0.672 2.943
DUAL GEN 0.159 2.151 0.208 2.469
Control variables
FSIZE 0.134 2.200 0.129 1.999
ROA –0.105 1.698 –0.183 2.189
FAGE –0.346 0.541 –0.382 0.636
GRO 0.029 0.759 0.071 0.879
GOWN 0.548 1.867 0.595 1.628
FOWN 0.213 2.470 0.303 2.876
Constant –1.736 2.084 –1.214 1.863
Year dummy Yes Yes
Industry dummy Yes Yes
Number of observations 198 198
F-statistic 18.36 13.43
Standard errors Clustered Clustered
Number of groups 33
Arellano–Bond test for AR (2) (p-value) 0.544
Hansen test of over identification (p-value) 0.336
Difference-in-Hansen test (p-value) 0.728
Notes: LEV ratio of total debt to total assets, LEV (t – 1) one-year lagged value of the firm’s leverage
level; the estimated coefficients and t-statistics are one-step system GMM, year and industry effects
are controlled for, Arellano–Bond test of the null hypothesis of no serial correlation (autocorrelation) in
the first-differenced residuals was used, Hansen test of over-identification for the validity of the full
instruments set was conducted, the difference-in-Hansen test was performed to check the validity of
a subset of instruments. Lagged model is the model with lagged all explanatory variables.
Superscripts , and statistically significant at 0.10, 0.05 and 0.01 levels, respectively
endogeneity issue, we used dynamic panel data to run the generalized method of moments
(GMM) estimator as a model developed by Arellano and Bond (1991) and Blundell and
Bond (1998) for dealing with endogeneity and provide robust results. The dynamic impacts
were checked by including a lagged value of the dependent variable LEV (t – 1) into the
study econometric model as an explanatory variable. Inkmann (2000) points out that to
overcome the shortcomings of the two-step system GMM with regard to the small sample
size, one-step GMM is considered as a good alternative estimator. In this context, a
detailed specification for the one-year-lagged model can be expressed as the following
formula:
LEVit ¼ b 0 þ b1 LEVðt 1Þ þ b 2 BSIZE it þ b 3 BIND it þ b 4 DUAL it þ b 5 GEN it

þ b 6 BSIZE GEN þ b 7 BIND GEN þ b 8 DUAL GEN þ b 9 FSIZE
þ b 10 ROAit þ b 11 FAGEit þ b 12 GROit þ b 13 GOWNit þ b 14 FOWNit
þ R INDUSTRY DUMMY þ R YEAR DUMMY þ «
(3)
Furthermore, the main regression model was replicated using one-year lagged values for all
explanatory variables to mitigate the detrimental influence of any potential endogeneity risk.

Fascinatingly, the findings of both GMM and lagged regression models (Table 4) are
compatible with the FE result reported in the Table 3.
6. Conclusion
The interrelation between CG and a firm’s financing decision has been theoretically and
empirically articulated. Notwithstanding, the existing studies have not yet provided a
profound understanding of the effect of board characteristics on the firm’s capital structure.
Thereby, this empirical study explored the impact of board attributes on firm’s leverage
level. In addition, this study asserts that considering the interaction between CG practices is
highly required to gain a comprehensive understanding of the issue under investigation.
Accordingly, we made a distinction between direct and indirect methods in analyzing the
nexus between board structure and firm’s financing decisions. More distinctly, to enrich
the literature beyond the narrow perspectives, the moderating effect of gender diversity on
the association between boardroom attributes and firm’s financing decisions has been
investigated.
According to the research analyses, it manifestly appears that our results are in alignment
with the agency theory arguments for explaining the entrenched logic behind the effect of
CG on the firm’s capital structure. Empirical findings based on the FE model unveiled that
all interest variables are significantly related to the firm’s capital structure. Furthermore, the
results report that women are under-represented in corporate boardrooms. However,
the issue of gender diversity has important implications for the financing decisions of the
Palestinian listed firms. From the philosophy of econometrics, it is well documented in
theoretical and empirical research that endogeneity bias is a serious issue in CG studies.
Different sources of endogeneity could produce misleading and inconsistent results.
Consequently, we use the one-step system GMM to estimate a dynamic model of the
influence of board characteristics and its interaction with gender diversity on the firm’s
financing decisions.
A somewhat marvelous finding is the strong effect of the moderating role of low level of
gender diversity on the association between board structure and firm’s financing choices.
More specifically, the effect of board size and board independence on firm’s financing
decisions is more positive under the condition of the presence of women on the boardroom,
whereas the influence of CEO duality on firm’s financing decisions changed from negative
to positive. More explicitly, when the percentage of female on the board rises, the effect of
“CEO duality” turns from negative significant to positive significant. In this context, a
conclusion can be drawn that when there is a women representation on the boardroom, the
CEO opportunistic behavior will be mitigated and therefore restricts the negative influence
of the dual role.
Although we attempt in this scholarly article to provide a holistic view of the moderating role
of gender diversity on the relationship between board characteristics and a firm’s financing
decisions, we acknowledge that our study has a few limitations that open the door for further
studies as follows:
䊏 First, one of the most serious limitations experienced throughout this study is that the
underlying assumptions of the moderating effect of gender diversity on CG–capital
structure literature have not yet examined by ancestors.
䊏 Second, this study was based on data from a developing economy (Palestine) with a
unique business environment. Thus, our empirical results may not be generalized
globally.
Besides, this research used data from non-financial listed firms. Hence, the conclusion
should not be generalized to the financial firms, as they have different acounting systems
and characteristics.

In light of the findings known above, we drive practical and theoretical implications to the
CG–capital structure literature:
䊏 First, practical implications: our findings suggest that managers should be careful in
establishing an optimal capital structure and behave in a way that does not attract risk to
the firm. Moreover, CG mechanisms and related policies are extremely crucial to lenders.
Thereby, to access more debt, companies may have to boost their board size and board
independence. A relatively larger board size with higher percentage of independent
members imposes more pressure on executive management to pursue a high debt
policy and therefore raise the firm value through a stringent and effective monitoring
mechanism. In the strictest sense, the increase in board size should also simultaneously
be accompanied by having more independent board members. This strategy is more
likely to lead to better monitoring process and help firms in attracting better resources. In
addition, regulatory bodies, policymakers, and practitioners should pay more attention to
the global concerns toward updating CG practices. In this regard, the reforming of CG
legislation should be done to stay aligned with accelerated changes in today’s uncertain
business environment. For instance, mandatory legislation such as the law against
gender discrimination and law that mandates quota for women in boardrooms. Besides,
offering persuasion to escalate women’s representation in the boardroom is important.
䊏 Second, from a theoretical point of view, the interaction of CG dimensions, particularly
“board attributes and gender diversity” may enhance the strategic decision process.
This implies that board characteristics are more likely to have a great influence on firms’
capital structure when they are interacting with “a high level of gender diversity.”
Finally, this study can serve as a basis for future scholarship pertaining to “CG and capital
structure,” particularly in developing countries. More specifically, this study encourages the
researchers for further future research on capital structure to examine the impact of other
CG dimensions on the firm’s financing decisions and to investigate theoretically other
significant moderators, e.g. analyzing the interactive effect of women CEOs on firm’s capital
structure. Moreover, to gain a comprehensive understanding and in-depth insights of the
capital structure among the investigated firms, this study encourages researchers to use
more than one ratio in measuring the firm’s capital structure.
References
Abor, J. (2007), “Corporate governance and financing decisions of Ghanaian listed firms”, Corporate
Governance: The International Journal of Business in Society, Vol. 7 No. 1, pp. 83-92.
Ahmed Sheikh, N. and Wang, Z. (2011), “Determinants of Capital structure: an empirical study of firms in
manufacturing industry of Pakistan”, Managerial Finance, Vol. 37 No. 2, pp. 117-133.
Ahmed Sheikh, N. and Wang, Z. (2012), “Effects of corporate governance on capital structure: empirical
evidence from Pakistan”, Corporate Governance: The International Journal of Business in Society, Vol. 12
No. 5, pp. 629-641.
Ahmed, K., Hossain, M. and Adams, M.B. (2006), “The effects of board composition and board size on
the informativeness of annual accounting earnings”, Corporate Governance: An International Review,
Vol. 14 No. 5, pp. 418-431.
Albuquerque, R., Koskinen, Y. and Zhang, C. (2018), “Corporate social responsibility and firm risk: theory
and empirical evidence”, Management Science, Vol. 65 No. 10.
Al-Najjar, B. and Taylor, P. (2008), “The relationship between capital structure and ownership structure:
new evidence from Jordanian panel data”, Managerial Finance, Vol. 34 No. 12, pp. 919-933.
Alves, P., Couto, E.B. and Francisco, P.M. (2015), “Board of directors’ composition and capital structure”,
Research in International Business and Finance, Vol. 35, pp. 1-32.
Aman, H. and Nguyen, P. (2013), “Does good governance matter to debtholders? Evidence from the
credit ratings of Japanese firms”, Research in International Business and Finance, Vol. 29, pp. 14-34.

Anderson, R.C., Mansi, S.A. and Reeb, D.M. (2004), “Board characteristics, accounting report integrity,
and the cost of debt”, Journal of Accounting and Economics, Vol. 37 No. 3, pp. 315-342.
Arellano, M. and Bond, S. (1991), “Some tests of specification for panel data: Monte Carlo evidence and
an application to employment equations”, The Review of Economic Studies, Vol. 58 No. 2, pp. 277-297.,
doi: 10.2307/2297968.
Azmi, W., Anwer, Z., Mohamad, S. and Shah, M.E. (2019), “The substitution hypothesis of agency
conflicts: evidence on Shariah compliant equities”, Global Finance Journal, Vol. 41, pp. 90-103.
Bajagai, R.K., Keshari, R.K., Bhetwal, P., Sah, R.S. and Jha, R.N. (2019), “Impact of ownership structure
and corporate governance on capital structure of Nepalese listed companies”, Business Governance
and Society, Springer.
Baumol, W.J. and Malkiel, B.G. (1967), “The firm’s optimal debt-equity combination and the cost of
capital”, The Quarterly Journal of Economics, Vol. 81 No. 4, pp. 547-578.
Baxter, N.D. (1967), “Leverage, risk of ruin and the cost of capital”, The Journal of Finance, Vol. 22 No. 3,
pp. 395-403.
Berger, A.N. and DI Patti, E.B. (2006), “Capital structure and firm performance: a new approach to testing
agency theory and an application to the banking industry”, Journal of Banking & Finance, Vol. 30 No. 4,
pp. 1065-1102.
Berger, P.G., Ofek, E. and Yermack, D.L. (1997), “Managerial entrenchment and capital structure
decisions”, The Journal of Finance, Vol. 52 No. 4, pp. 1411-1438.
Bevan, A.A. and Danbolt, J. (2002), “Capital structure and its determinants in the UK–a decompositional
analysis”, Applied Financial Economics, Vol. 12 No. 3, pp. 159-170.
Bhojraj, S. and Sengupta, P. (2003), “Effect of corporate governance on bond ratings and yields: the role
of institutional investors and outside directors”, The Journal of Business, Vol. 76 No. 3, pp. 455-475.
BIN-Sariman, A., S. Ali, A. and Nor, M.N.M. (2016), “Board of directors’ quality and firms’ debt financing:
the moderating effect of insider ownership–evidence from Omani firms”, Applied Economics, Vol. 48
No. 5, pp. 402-410.
Blundell, R. and Bond, S. (1998), “Initial conditions and moment restrictions in dynamic panel data
models”, Journal of Econometrics, Vol. 87 No. 1, pp. 115-143, doi: 10.1016/S0304-4076(98)00009-8.
Bokpin, G.A. and Arko, A.C. (2009a), “Ownership structure, corporate governance and capital structure
decisions of firms”, Studies in Economics and Finance, Vol. 26 No. 4.
Bokpin, G.A. and Arko, A.C. (2009b), “Ownership structure, corporate governance and capital structure
decisions of firms: empirical evidence from Ghana”, Studies in Economics and Finance, Vol. 26 No. 4,
pp. 246-256.
Bonn, I., Yoshikawa, T. and Phan, P.H. (2004), “Effects of board structure on firm performance: a
comparison between Japan and Australia”, Asian Business & Management, Vol. 3 No. 1,
pp. 105-125.
Bradley, M. and Chen, D. (2011), “Corporate governance and the cost of debt: evidence from director
limited liability and indemnification provisions”, Journal of Corporate Finance, Vol. 17 No. 1, pp. 83-107.
Bradley, M., Jarrell, G.A. and Kim, E.H. (1984), “On the existence of an optimal capital structure: theory
and evidence”, The Journal of Finance, Vol. 39 No. 3, pp. 857-878.
Brickley, J.A., Coles, J.L. and Jarrell, G. (1997), “Leadership structure: separating the CEO and chairman
of the board”, Journal of Corporate Finance, Vol. 3 No. 3, pp. 189-220.
Brown, P., Beekes, W. and Verhoeven, P. (2011), “Corporate governance, accounting and finance: a
review”, Accounting & Finance, Vol. 51 No. 1, pp. 96-172., doi: 10.1111/j.1467-629X.2010.00385.x.
Brush, T.H., Bromiley, P. and Hendrickx, M. (2000), “The free cash flow hypothesis for sales growth and
firm performance”, Strategic Management Journal, Vol. 21 No. 4, pp. 455-472.
Butt, S.A. and Hasan, A. (2009), “Impact of ownership structure and corporate governance on capital
structure of Pakistani listed companies”, International Journal of Business & Management, Vol. 4 No. 2.
Carter, D.A., D’Souza, F., Simkins, B.J. and Simpson, W.G. (2010), “The gender and ethnic diversity of US
boards and board committees and firm financial performance”, Corporate Governance: An International
Review, Vol. 18 No. 5, pp. 396-414.

Carter, D.A., Simkins, B.J. and Simpson, W.G. (2003), “Corporate governance, board diversity, and firm
value”, The Financial Review, Vol. 38 No. 1, pp. 33-53., doi: 10.1111/1540-6288.00034.
Chen, J.J. (2004), “Determinants of capital structure of Chinese-listed companies”, Journal of Business
Research, Vol. 57 No. 12, pp. 1341-1351.
Cheng, E.C. and Courtenay, S.M. (2006), “Board composition, regulatory regime and voluntary
disclosure”, The International Journal of Accounting, Vol. 41 No. 3, pp. 262-289.
Chen, H.-L. and Hsu, W.-T. (2009), “Family ownership, board independence, and R&D investment”,
Family Business Review, Vol. 22 No. 4, pp. 347-362.
Chi, J. (2005), “Understanding the endogeneity between firm value and shareholder rights”, Financial
Management, Vol. 34 No. 4, pp. 65-76., doi: 10.1111/j.1755-053X.2005.tb00118.x.
Chow, Y.P., Muhammad, J., Bany-Ariffin, A. and Cheng, F.F. (2018), “Macroeconomic uncertainty,
corporate governance and corporate capital structure”, International Journal of Managerial Finance,
Vol. 14 No. 3, pp. 301-321.
Ciftci, I., Tatoglu, E., Wood, G., Demirbag, M. and Zaim, S. (2019), “Corporate governance and firm
performance in emerging markets: evidence from Turkey”, International Business Review, Vol. 28 No. 1,
pp. 90-103.
Cole, R.A. (2013), “What do we know about the capital structure of privately held US firms? Evidence from
the surveys of small business finance”, Financial Management, Vol. 42 No. 4, pp. 777-813.
Core, J.E., Holthausen, R.W. and Larcker, D.F. (1999), “Corporate governance, chief executive officer
compensation, and firm performance”, Journal of Financial Economics, Vol. 51 No. 3, pp. 371-406.
Czerwonka, L. and Jaworski, J. (2019), “Determinants of enterprises’ capital structure in Poland:
evidence from Warsaw stock exchange”, Eurasian Economic Perspectives, Springer.
Daraghma, Z.M. and Alsinawi, A.-A. (2010), “Board of directors, management ownership, and capital
structure and its effect on performance: the case of Palestine securities exchange”, International Journal
of Business and Management, Vol. 5 No. 11, p. 118.
Darko, J., Aribi, Z.A. and Uzonwanne, G.C. (2016), “Corporate governance: the impact of director and
board structure, ownership structure and corporate control on the performance of listed companies on
the Ghana stock exchange”, Corporate Governance: The International Journal of Business in Society,
Vol. 16 No. 2, pp. 259-277.
DAS, P. (2014), “The role of corporate governance in foreign investments”, Applied Financial Economics,
Vol. 24 No. 3, pp. 187-201.
DE Andres, P., Azofra, V. and Lopez, F. (2005), “Corporate boards in OECD countries: size, composition,
functioning and effectiveness”, Corporate Governance, Vol. 13 No. 2, pp. 197-210.
Deesomsak, R., Paudyal, K. and Pescetto, G. (2004), “The determinants of capital structure: evidence
from the Asia Pacific region”, Journal of Multinational Financial Management, Vol. 14 Nos 4/5,
pp. 387-405.
Dhaliwal, D., Heitzman, S. and Zhen Li, O. (2006), “Taxes, leverage, and the cost of equity capital”,
Journal of Accounting Research, Vol. 44 No. 4, pp. 691-723.
Dimitropoulos, P. (2014), “Capital structure and corporate governance of soccer clubs: European
evidence”, Management Research Review, Vol. 37 No. 7, pp. 658-678.
Du, J. and Dai, Y. (2005), “Ultimate corporate ownership structures and capital structures: evidence from
east Asian economies”, Corporate Governance, Vol. 13 No. 1, pp. 60-71.
Duru, A., Iyengar, R.J. and Zampelli, E.M. (2016), “The dynamic relationship between CEO duality and
firm performance: the moderating role of board independence”, Journal of Business Research, Vol. 69
No. 10, pp. 4269-4277.
Elmagrhi, M.H., Ntim, C.G., Malagila, J., Fosu, S. and Tunyi, A.A. (2018), “Trustee board diversity,
governance mechanisms, capital structure and performance in UK charities”, Corporate Governance:
The International Journal of Business in Society, Vol. 18 No. 3.
Faccio, M., Marchica, M.-T. and Mura, R. (2016), “CEO gender, corporate risk-taking, and the efficiency
of capital allocation”, Journal of Corporate Finance, Vol. 39, pp. 193-209.
Fama, E.F. and Jensen, M.C. (1983a), “Agency problems and residual claims”, The Journal of Law and
Economics, Vol. 26 No. 2, pp. 327-349., doi: 10.1086/467038.

Fama, E.F. and Jensen, M.C. (1983b), “Separation of ownership and control”, The Journal of Law and
Economics, Vol. 26 No. 2, pp. 301-325.
Farrell, K.A. and Hersch, P.L. (2005), “Additions to corporate boards: the effect of gender”, Journal of
Corporate Finance, Vol. 11 No. 1-2, pp. 85-106.
Fosberg, R.H. (2004), “Agency problems and debt financing: leadership structure effects”, Corporate
Governance: The International Journal of Business in Society, Vol. 4 No. 1, pp. 31-38.
Frank, M.Z. and Goyal, V.K. (2009), “Capital structure decisions: which factors are reliably important?”,
Financial Management, Vol. 38 No. 1, pp. 1-37.
Fuente, J.A., Garcı́a-Sanchez, I.M. and Lozano, M.B. (2017), “The role of the board of directors in the
adoption of GRI guidelines for the disclosure of CSR information”, Journal of Cleaner Production, Vol. 141,
pp. 737-750.
Ghouma, H., Ben-Nasr, H. and Yan, R. (2018), “Corporate governance and cost of debt financing:
empirical evidence from Canada”, The Quarterly Review of Economics and Finance, Vol. 67,
pp. 138-148.
Granado-Peiro, N. and Lo
pez-Gracia, J. (2017), “Corporate governance and capital structure: a Spanish
study”, European Management Review, Vol. 14 No. 1, pp. 33-45.
Gujarati, D.N. (2009), Basic Econometrics, Tata McGraw-Hill Education.
Hashim, H.A. and Amrah, M. (2016), “Corporate governance mechanisms and cost of debt”, Managerial
Auditing Journal, Vol. 31 No. 3.
Hermalin, B.E. and Weisbach, M.S. (1991), “The effects of board composition and direct incentives on
firm performance”, Financial Management, Vol. 20 No. 4, pp. 101-112.
Hewa Wellalage, N. and Locke, S. (2015), “Impact of ownership structure on capital structure of New
Zealand unlisted firms”, Journal of Small Business and Enterprise Development, Vol. 22 No. 1,
pp. 127-142.
Hussainey, K. and Aljifri, K. (2012), “Corporate governance mechanisms and capital structure in UAE”,
Journal of Applied Accounting Research, Vol. 13 No. 2, pp. 145-160.
Inkmann, J. (2000), “Finite sample properties of one-step, two-step and bootstrap empirical likelihood
approaches to efficient GMM estimation”.
Jackling, B. and Johl, S. (2009), “Board structure and firm performance: evidence from India’s top
companies”, Corporate Governance: An International Review, Vol. 17 No. 4, pp. 492-509.
Jensen, M.C. (1986), “Agency costs of free cash flow, corporate finance, and takeovers”, The American
Economic Review, Vol. 76 No. 2, pp. 323-329.
Jensen, M.C. (1993), “The modern industrial revolution, exit, and the failure of internal control systems”,
The Journal of Finance, Vol. 48 No. 3, pp. 831-880.
Jensen, M.C. and Meckling, W.H. (1976), “Theory of the firm: managerial behavior, agency costs and
ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-360.
Ji, S., Mauer, D.C. and Zhang, Y. (2019), “Managerial entrenchment and capital structure: the effect of
diversification”, Journal of Corporate Finance, p. 101505.
Jiraporn, P. and Gleason, K.C. (2007), “Capital structure, shareholder rights, and corporate governance”,
Journal of Financial Research, Vol. 30 No. 1, pp. 21-33.
Jiraporn, P.K., J.-C.Kim, Y.S. and Kitsabunnarat, P. (2012), “Capital structure and corporate governance
quality: evidence from the institutional shareholder services (ISS)”, International Review of Economics &
Finance, Vol. 22 No. 1, pp. 208-221.
Joh, S.W. (2003), “Corporate governance and firm profitability: evidence from Korea before the economic
crisis”, Journal of Financial Economics, Vol. 68 No. 2, pp. 287-322.
Karadeniz, E., Yilmaz Kandir, S., Balcilar, M. and Beyazit Onal, Y. (2009), “Determinants of capital
structure: evidence from Turkish lodging companies”, International Journal of Contemporary Hospitality
Management, Vol. 21 No. 5, pp. 594-609.
Kester, W.C. (1986), “Financial management in Japan capital and ownership structure: a comparison of
United States and Japanese manufacturing corporations”, Financial Management ( Management),
Vol. 15 No. 1, p. 5.

Khasawneh, A.Y. and Staytieh, K.S. (2017), “Impact of foreign ownership on capital structure and firm
value in emerging market: case of Amman stock exchange listed firms”, Afro-Asian Journal of Finance
and Accounting, Vol. 7 No. 1, pp. 35-64.
Kieschnick, R. and Moussawi, R. (2018), “Firm age, corporate governance, and capital structure
choices”, Journal of Corporate Finance, Vol. 48, pp. 597-614.
Klein, A. (1998), “Firm performance and board committee structure”, The Journal of Law and Economics,
Vol. 41 No. 1, pp. 275-304.
Kochhar, R. (1996), “Explaining firm Capital structure: the role of agency theory vs transaction cost
economics”, Strategic Management Journal, Vol. 17 No. 9, pp. 713-728.
Kraus, A. and Litzenberger, R.H. (1973), “A state-preference model of optimal financial leverage”, The
Journal of Finance, Vol. 28 No. 4, pp. 911-922.
Kyereboah-Coleman, A. and Biekpe, N. (2006), “Corporate governance and financing choices of firms: a
panel data analysis”, The South African Journal of Economics, Vol. 74 No. 4, pp. 670-681.
Kyereboah-Coleman, A., Adjasi, C.K. and Abor, J. (2006), “Corporate governance and firm performance:
evidence from Ghanaian listed companies”, Corporate Ownership and Control, Vol. 4 No. 2.
Li, K., Yue, H. and Zhao, L. (2009), “Ownership, institutions, and capital structure: evidence from China”,
Journal of Comparative Economics, Vol. 37 No. 3, pp. 471-490.
Lipton, M. and Lorsch, J.W. (1992), “A modest proposal for improved corporate governance”, The
Business Lawyer, pp. 59-77.
nchez-Ballesta, J.P. and Garcı́a-Meca, E. (2011), “Board effectiveness and cost of debt”,
Lorca, C., Sa
Journal of Business Ethics, Vol. 100 No. 4, pp. 613-631.
Mande, V., Park, Y.K. and Son, M. (2012), “Equity or debt financing: does good corporate governance
matter?”, Corporate Governance: An International Review, Vol. 20 No. 2, pp. 195-211.
Mardnly, Z., Mouselli, S. and Abdulraouf, R. (2018), “Corporate governance and firm performance: an
empirical evidence from Syria”, International Journal of Islamic and Middle Eastern Finance and
Management, Vol. 11 No. 4, pp. 591-607.
Marquaridt, D.W. (1970), “Generalized inverses, ridge regression, biased linear estimation, and nonlinear
estimation”, Technometrics, Vol. 12 No. 3, pp. 591-612.
Maxfield, S., Shapiro, M., Gupta, V. and Hass, S. (2010), “Gender and risk: women, risk taking and risk
aversion”, Gender in Management: An International Journal, Vol. 25 No. 7, doi: 10.1108/17542411011081383
Mcneish, D.M. (2014), “Analyzing clustered data with OLS regression: the effect of a hierarchical data
structure”, Multiple Linear Regression Viewpoints, Vol. 40, pp. 11-16.
Mehran, H. (1992), “Executive incentive plans, corporate control, and capital structure”, The Journal of
Financial and Quantitative Analysis, Vol. 27 No. 4, pp. 539-560.
Menard, S.W. (1995), Applied Logistic Regression Analysis, Sage.

Miller, M.H. (1977), “Debt and taxes”, The Journal of Finance, Vol. 32 No. 2, pp. 261-275.
Morellec, E. (2004), “Can managerial discretion explain observed leverage ratios?”, The Review of
Financial Studies, Vol. 17 No. 1, pp. 257-294.
Myers, S.C. (1984), “The capital structure puzzle”, The Journal of Finance, Vol. 39 No. 3, pp. 574-592.
Myers, S.C. and Majluf, N.S. (1984), “Corporate financing and investment decisions when firms have
information that investors do not have”, Journal of Financial Economics, Vol. 13 No. 2, pp. 187-221.
Nguyen, T., Locke, S. and Reddy, K. (2015), “Ownership concentration and corporate performance from
a dynamic perspective: does national governance quality matter?”, International Review of Financial
Analysis, Vol. 41, pp. 148-161.
Noulas, A. and Genimakis, G. (2011), “The determinants of capital structure choice: evidence from Greek
listed companies”, Applied Financial Economics, Vol. 21 No. 6, pp. 379-387.
Paniagua, J., Rivelles, R. and Sapena, J. (2018), “Corporate governance and financial performance: the
role of ownership and board structure”, Journal of Business Research, Vol. 89, pp. 229-234.
Park, K. and Jang, S.S. (2013), “Capital structure, free cash flow, diversification and firm performance: a
holistic analysis”, International Journal of Hospitality Management, Vol. 33, pp. 51-63.

Peng, M.W., Zhang, S. and Li, X. (2007), “CEO duality and firm performance during china’s institutional
transitions”, Management and Organization Review, Vol. 3 No. 2, pp. 205-225.
Petersen, M.A. (2009), “Estimating standard errors in finance panel data sets: comparing approaches”,
Review of Financial Studies, Vol. 22 No. 1, pp. 435-480.
Pillai, R. and Al-Malkawi, H.-A.N. (2018), “On the relationship between corporate governance and firm
performance: evidence from GCC countries”, Research in International Business and Finance, Vol. 44,
pp. 394-410.
Pindado, J. and DE LA Torre, C. (2011), “Capital structure: new evidence from the ownership structure”,
International Review of Finance, Vol. 11 No. 2, pp. 213-226.
Pöyry, S. and Maury, B. (2010), “Influential ownership and capital structure”, Managerial and Decision
Economics, Vol. 31 No. 5, pp. 311-324.
Reddy, K. and Locke, S. (2014), “The relationship between ownership structure, capital structure and
corporate governance practices: a case study of co-operatives and Mutuals in New Zealand”,
International Journal of Managerial Finance, Vol. 10 No. 4, pp. 511-536.
Ruigrok, W., Peck, S. and Tacheva, S. (2007), “Nationality and gender diversity on Swiss corporate
boards”, Corporate Governance: An International Review, Vol. 15 No. 4, pp. 546-557., doi: 10.1111/
j.1467-8683.2007.00587.x.
Said, R., Zainuddin, Y.H. and Haron, H. (2009), “The relationship between corporate social responsibility
disclosure and corporate governance characteristics in Malaysian public listed companies”, Social
Responsibility Journal, Vol. 5 No. 2, doi: 10.1108/17471110910964496
Saleh, M.W., Latif, R.A., Bakar, F.A. and Maigoshi, Z.S. (2020), “The impact of multiple directorships,
board characteristics, and ownership on the performance of Palestinian listed companies”, International
Journal of Accounting, Auditing and Performance Evaluation, Vol. 16 No. 1, pp. 63-80.
Saona, P., Vallelado, E. and San Martı́n, P. (2019), “Debt, or not debt, that is the question: a
Shakespearean question to a corporate decision”, Journal of Business Research, Vol. 115.
Schicks, J. (2014), “Over-indebtedness in microfinance – an empirical analysis of related factors on the
borrower level”, World Development, Vol. 54, pp. 301-324.
Schubert, R. (2006), “Analyzing and managing risks–on the importance of gender differences in risk
attitudes”, Managerial Finance, Vol. 32 No. 9.
Thompson, S.B. (2011), “Simple formulas for standard errors that cluster by both firm and time”, Journal
of Financial Economics, Vol. 99 No. 1, pp. 1-10.
Titman, S. and Wessels, R. (1988), “The determinants of capital structure choice”, The Journal of Finance,
Vol. 43 No. 1, pp. 1-19.
Tong, G. and Green, C.J. (2005), “Pecking order or trade-off hypothesis? Evidence on the capital
structure of Chinese companies”, Applied Economics, Vol. 37 No. 19, pp. 2179-2189.
Usman, M., Farooq, M.U., Zhang, J., Makki, M.A.M. and Khan, M.K. (2019), “Female directors and the
cost of debt: does gender diversity in the boardroom matter to lenders?”, Managerial Auditing Journal,
Vol. 34 No. 4, pp. 374-392.
Virtanen, A. (2012), “Women on the boards of listed companies: evidence from Finland”, Journal of
Management & Governance, Vol. 16 No. 4, pp. 571-593.
Vogelsang, T.J. (2012), “Heteroskedasticity, autocorrelation, and spatial correlation robust inference in
linear panel models with fixed-effects”, Journal of Econometrics, Vol. 166 No. 2, pp. 303-319.
Wen, Y., Rwegasira, K. and Bilderbeek, J. (2002), “Corporate governance and capital structure decisions
of the Chinese listed firms”, Corporate Governance, Vol. 10 No. 2, pp. 75-83.
Wooldridge, J.M. (2010), Econometric Analysis of Cross Section and Panel Data, MIT press.
Yoshikawa, T. and Phan, P.H. (2005), “The effects of ownership and capital structure on board
composition and strategic diversification in Japanese corporations”, Corporate Governance, Vol. 13
No. 2, pp. 303-312.
Zaid, M.A., Abuhijleh, S.T. and Pucheta-Martı́nez, M.C. (2020a), “Ownership structure, stakeholder
engagement, and corporate social responsibility policies: the moderating effect of board
independence”, Corporate Social Responsibility and Environmental Management, Vol. 27 No. 3,
pp. 1344-1360., doi: 10.1002/csr.1888.

Zaid, M.A., Wang, M. and Abuhijleh, S.T. (2019), “The effect of corporate governance practices on
corporate social responsibility disclosure: evidence from Palestine”, Journal of Global Responsibility,
Vol. 10 No. 2, pp. 134-160., doi: 10.1108/JGR-10-2018-0053.
Zaid, M.A., Wang, M., Adib, M., Sahyouni, A. and Abuhijleh, S.T. (2020b), “Boardroom nationality and
gender diversity: implications for corporate sustainability performance”, Journal of Cleaner Production,
Vol. 251, p. 119652, doi: 10.1016/j.jclepro.2019.119652.
About the authors

Mohammad A. A. Zaid is a PhD holder in Accounting. He received his PhD degree form
Dongbei University of Finance and Economics in 2020, Dalian, China. Also, he is a Financial
Auditor at State Audit and Administrative Control Bureau, State of Palestine. His research,
and corporate social responsibility interests are mainly in the areas of corporate disclosure,
IFRS, corporate governance, corporate social responsibility. Zaid has published many
papers in highly ranked and top-tier journals such as the Journal of Cleaner Production,
Corporate Social Responsibility and Environmental Management and Journal of Global
Responsibility. Mohammad A.A. Zaid is the corresponding author and can be contacted at:
phd.zaid@gmail.com
Man Wang is a Professor of Accounting at the School of Accounting, Dongbei University of

Finance and Economics (DUFE), Dalian, China. She received her PhD in Management with
Accounting Emphasis from the DUFE University in 2006. In addition, she is a CPA –
Certified Public Accountants. Her main areas of expertise are strategic management,
financial strategy, corporate finance and management accounting. Professor Man’s
research papers have been published in a number of well-respected journals, including
Accounting Research, Journal of Cleaner Production, Economic Research-Ekonomska
Istraživanja, Journal of Global Responsibility, Modern Finance and Economics, Afro-Asian
Journal of Finance and Accounting. Further, she authored several books in management
accounting and financial management.
Sara T.F. Abuhijleh is a Postgraduate Research Student at the School of Accounting,
Dongbei University of Finance and Economics, Dalian, China. Also, she is a CMA – Certified
Management Accountant. Her main areas of expertise are corporate governance (financing
policies) and business sustainability.
Ayman Issa received his PhD in Accounting from Dongbei University of Finance and
Economics in June 2019. His research interests include corporate governance, voluntary
disclosure, corporate social responsibility and CEO succession.
Mohammed W. A. Saleh is an Assistance Professor of Accounting at the School of
Accounting, Palestine Technical University – Kadoorie. He received his PhD in Accounting
from the University Utara Malaysia. His research interest focuses on financial performance,
corporate governance, auditing, corporate social responsibility and corporate disclosure.
Farman Ali is a PhD holder in Financial Management . Hi received his PhD degree form
Dongbei University of Finance and Economics in 2020, Dalian, China. His research interests
are corporate governance, investments, financial markets and financial performance.
For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com

Moderating Effect of Gender Diversity PDF

Uploaded by

Copyright:

Available Formats

You might also like

Moderating Effect of Gender Diversity PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Moderating Effect of Gender Diversity PDF

Uploaded by

Copyright:

Available Formats

Corporate governance practices

and capital structure decisions: the

Abstract Mohammad A.A. Zaid,

PAGE 940 j CORPORATE GOVERNANCE j VOL. 20 NO. 5 2020

VOL. 20 NO. 5 2020 j CORPORATE GOVERNANCE j PAGE 941

PAGE 942 j CORPORATE GOVERNANCE j VOL. 20 NO. 5 2020

VOL. 20 NO. 5 2020 j CORPORATE GOVERNANCE j PAGE 943

3. Theoretical framework and hypotheses development

PAGE 944 j CORPORATE GOVERNANCE j VOL. 20 NO. 5 2020

3.2 Hypotheses development

VOL. 20 NO. 5 2020 j CORPORATE GOVERNANCE j PAGE 945

PAGE 946 j CORPORATE GOVERNANCE j VOL. 20 NO. 5 2020

VOL. 20 NO. 5 2020 j CORPORATE GOVERNANCE j PAGE 947

4. Research design and methodology

PAGE 948 j CORPORATE GOVERNANCE j VOL. 20 NO. 5 2020

4.2 Variables definitions and measurements

VOL. 20 NO. 5 2020 j CORPORATE GOVERNANCE j PAGE 949

4.3 Regression model specification

LEVit ¼ b 0 þ b BS it þ b BGit þ g Zit þ h i þ t þ « it (1)

LEVit ¼ b 0 þ b 1 BSIZEit þ b 2 BINDit þ b 3 DUALit þ b 4 GENit þ b 5 BSIZE GENit

5. Empirical results and discussion

PAGE 950 j CORPORATE GOVERNANCE j VOL. 20 NO. 5 2020

LEV 0.33 0.31 0.19 0.01 0.78

5.2 Bivariate analysis

Table 2 Pearson correlation matrix

VOL. 20 NO. 5 2020 j CORPORATE GOVERNANCE j PAGE 951

5.3 Multivariate regression findings

PAGE 952 j CORPORATE GOVERNANCE j VOL. 20 NO. 5 2020

VOL. 20 NO. 5 2020 j CORPORATE GOVERNANCE j PAGE 953

PAGE 954 j CORPORATE GOVERNANCE j VOL. 20 NO. 5 2020

5.4 Robustness checks

VOL. 20 NO. 5 2020 j CORPORATE GOVERNANCE j PAGE 955

LEVit ¼ b 0 þ b1 LEVðt 1Þ þ b 2 BSIZE it þ b 3 BIND it þ b 4 DUAL it þ b 5 GEN it

PAGE 956 j CORPORATE GOVERNANCE j VOL. 20 NO. 5 2020

VOL. 20 NO. 5 2020 j CORPORATE GOVERNANCE j PAGE 957

PAGE 958 j CORPORATE GOVERNANCE j VOL. 20 NO. 5 2020

VOL. 20 NO. 5 2020 j CORPORATE GOVERNANCE j PAGE 959

PAGE 960 j CORPORATE GOVERNANCE j VOL. 20 NO. 5 2020

VOL. 20 NO. 5 2020 j CORPORATE GOVERNANCE j PAGE 961

Menard, S.W. (1995), Applied Logistic Regression Analysis, Sage.

PAGE 962 j CORPORATE GOVERNANCE j VOL. 20 NO. 5 2020

VOL. 20 NO. 5 2020 j CORPORATE GOVERNANCE j PAGE 963

About the authors

Man Wang is a Professor of Accounting at the School of Accounting, Dongbei University of

PAGE 964 j CORPORATE GOVERNANCE j VOL. 20 NO. 5 2020

You might also like