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Corporate Governance and Capital Structure: Evidence from Sustainable Institutional Ownership

College of Business Administration, Ewha Womans University, 52 Ewhayeodae-gil, Seodaemun-gu, Seoul 03750, Korea
Department of Business Management, The State University of New York, 119-2 Songdo Moonhwa-ro, Yeonsu-gu, Incheon 21985, Korea
School of Business Administration, College of Business and Economics, Chung-Ang University, 84 Heukseok-ro, Dongjak-gu, Seoul 06974, Korea
School of Economics, Yonsei University, 50 Yonsei-ro, Seodaemun-gu, Seoul 03722, Korea
Author to whom correspondence should be addressed.
Sustainability 2020, 12(10), 4190;
Received: 21 April 2020 / Revised: 14 May 2020 / Accepted: 18 May 2020 / Published: 20 May 2020
(This article belongs to the Section Economic, Business and Management Aspects of Sustainability)
Because corporate sustainability enhances corporate governance principles, firms are increasing their efforts to provide transparency and public disclosure. These efforts inform the public about the relationship between corporate governance and sustainability. Well-informed shareholders know about this relationship, which is becoming more apparent over time. In this study, we empirically examined the possible bilateral relationships between institutional ownership and a firm’s capital structure. Methodologically, we used an instrumental variable approach and the two-step generalized method of moments. The implications of this study are two-fold. First, we found that a firm’s debt level was low if its institutional ownership level was high. Institutional monitoring may substitute for external debt monitoring, leading firms to employ low leverage. Second, we found that the level of institutional ownership was high if a firm’s debt level was high. This association suggests that institutional investors prefer high-leveraged firms because institutional owners decrease their monitoring costs through debt monitoring. In the long run, sustainable institutional ownership materially impacts the capital structures of firms. View Full-Text
Keywords: capital structure; sustainable corporate governance; institutional investor; monitoring capital structure; sustainable corporate governance; institutional investor; monitoring
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Choi, P.M.S.; Choi, J.H.; Chung, C.Y.; An, Y.J. Corporate Governance and Capital Structure: Evidence from Sustainable Institutional Ownership. Sustainability 2020, 12, 4190.

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