Regulatory quality and corporate leverage: Evidence from a large international sample

Samia Belaounia (1) , Pascal Nguyen (2) , Nahid Rahman (3) , Ruoyun Lucy Zhao (4)

1 NEOMA - Neoma Business School
2 MRM - Montpellier Research in Management
3 Australian National Institute of Management and Commerce
4 UTS - University of Technology Sydney

Corporate leverage is strongly related to firm characteristics. However, this relationship varies across countries, and institutions play an important role in corporate financing. In this study, we examine the impact of country-level regulatory quality on firm leverage and focus on how the effects of firm-level determinants of leverage are moderated by the country’s regulatory quality. Using a sample of 547,864 firm-year observations for 46,184 firms across 69 countries, we show that the positive influence of firm size and asset tangibility is attenuated by regulatory quality, while the negative influence of the firm’s growth opportunities, R&D intensity, and profitability decreases with regulatory quality. These results underline the benefit of robust country-level regulatory quality in facilitating the access to debt financing of small, growth-oriented firms with high R&D expenditures and few tangible assets to pledge as collateral.

Keywords: capital structure leverage regulatory quality cross-country analysis; capital structure; leverage; regulatory quality; cross-country analysis; capital structure leverage regulatory quality cross-country analysis

Domains: Economics and Finance

Samia Belaounia, Pascal Nguyen, Nahid Rahman, Ruoyun Lucy Zhao. Regulatory quality and corporate leverage: Evidence from a large international sample. 2024. ⟨hal-04729296⟩