Influence of corporate board structure and functioning on financial leverage of Australian firms

Abstract

The present study examines the influence of board structure and functioning on capital structure decisions of corporate firms in Australia. The sample consists of 153 large non-financial firms for the period 2004 to 2010. Initial examination of the board structures and functioning show that median board size in Australia is 7 and the board size is neither too large nor too small. Australian firms compare well with firms from other parts of the developed world in terms of board independence and skills of boards of directors. Similarly, board meetings of Australian firms are well attended. However, board members on an average have less experience compared to board members in other developed countries. OLS analyses of the influence of board structure and functioning on leverage show that CEO-Chairman duality has significant positive influence on long-term leverage while it has significant negative influence on short-term leverage. OLS analyses fails to unearth the significant influences of board independence and firm size on capital structure of Australian firms. Fixed effects panel data analyses clearly identifies the role board independence and board meetings play in determining the capital structure of Australian firms. The present study also finds that board skills, experience and board meeting attendance have no significant bearing the capital structure decision of Australian corporate firms.