Board of directors’ composition and financing choices

Building on the pecking order theory of Myers and Majluf, (1984) and Myers (1984), the present study empirically analyses the association between the board of directors’ composition and firm financing policies. Particularly, the fraction of independent directors on the board, the fraction of female directors, the board size, and whether the Chief Executive Officer (CEO) is also the chairman of the board are analysed. It is conjectured that a more independent and efficient board leads to a shift of financing choices from retained earnings to short term debt, from short term debt to long term debt and from long term debt to external equity financing. The results obtained strongly support this hypothesis. Policy implications are then derived