Board of Directors’ Composition and Capital Structure

The present study empirically analyses the association between board of directors’ composition and capital structure. 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 analyzed. Consistent with the pecking order theory of Myers (1984) and Myers and Majluf (1984) the results provide strong evidence that firms with a larger fraction of independent directors on the board have a capital structure composed with more external capital when compared with retained earnings; have more short term debt in relation with retained earnings; have more long term debt compared with short term debt; and have more external equity than long term debt. The results also provide some evidence that a more gender diversified board of directors and where the chairman is non-executive (i.e. the CEO is a different person from that of the chairman) can improve the board of directors’ independence and efficiency and therefore lead the firm to have a capital structure composed with more long term sources of financing.