Board composition and capital structure choice

The present study addresses how and the extent to which the composition of the board impacts the capital structure choices made by a firm. In particular, the fraction of independent directors, the degree of gender- and nationality diversity, board size, and CEO duality have been analysed. By using a unique panel dataset, this study shows that firms that have a stronger presence of female directors on the board issue more equity as compared to debt. In particular, the results show that when the presence of female directors in the board is at least 30%, firms (1) hold less internal capital as compared to short-term debt and (2) hold more external equity as compared to long-term debt. The results also provide evidence that firms with a larger fraction of independent directors on the board, a larger board size, or CEO who also holds the position of the chairman, use more risky financing sources in their capital structure. On the contrary, firms that have a more nationality diverse board tend to be less levered, and in particular use less long-term debt. Overall, this study echoes the findings in previous studies that certain board attributes should not be ignored in capital structure models