Debt and entrenchment: Evidence from Thailand and Indonesia

This paper examines the relation between debt and corporate governance in emerging market economies. We use …rm-level panel data of listed companies from Thailand and Indonesia to analyze the …rm’s corporate …nancing behaviors in connection with its corporate governance arrangements. Our results show that the debt structure is linked to the corporate governance. We …nd that weaker corporate governance …rms, in particular measured by the entrenchment e¤ects, tend to have a higher debt level. The evidence is relatively stronger during the crisis period. Our results also shed lights on the importance of the country-speci…c institutional settings that would a¤ect the empirical results. Keywords: Debt, Entrenchment, Corporate Governance, Financial Crisis, East Asia JEL Classi…cation: G15, G32, G34 Corresponding author : Pramuan Bunkanwanicha, ROSES-CNRS Maison des Sciences Economiques, University Paris 1-Panthéon-Sorbonne, 106-112 Bd. de l’Hôpital 75647 Paris cedex 13, France Tel: (33) 1 44 07 81 95 Fax: (33) 1 44 07 81 91 E-mail: [email protected] We would like to thank Mathilde Maurel for her very helpful comments. The authors are responsible for all remaining errors. yROSES-CNRS, University Paris 1-Panthéon-Sorbonne and IAE Lyon Business School zESCP-EAP European School of Management xTEAM-CNRS, University Paris 1-Panthéon-Sorbonne