The influence of corporate governance committee presence and characteristics on capital structure: The role of CEO overconfidence in Jordan.

Abstract

In 2017, the Jordanian corporate governance code was revised with the objective of promoting transparency, accountability, and governance practices inthe corporate sector by requiring firms to establish a corporate governance committee (CGC). Considering this, this paper analyses the impact of the presence and characteristics of the CGC on the capital structure of a firm, mainly focusing on the moderating role of CEO overconfidence. This study uses a sample of 71 Jordanian listed firms, we analyze the effect of the presence of the CGC, along with its various characteristics (e.g., female representation, meeting frequency, size, and independence) on the firm's debt ratio. The analysis also examines how the overconfidence of the CEO may impact on this relationship. We find that the existence of a CGC is negatively related to debt levels due to more conservative financial decisions being in place. In addition, more female directors on the committee, more frequent meetings, and increased independence are linked to lower debt ratios, supporting the role of governance in corporate risk management. The results also indicate that CEO overconfidence significantly moderates the relationship between the characteristics of CGC and capital structure in that overconfident CEOs are likely to weaken the favorable impact of CGC on corporate risk management. These findings point out that corporate governance matters in shaping financial strategy and thus has implications for both researchers and practitioners in the quest to improve governance practices that mitigate financial risk and enhance firm stability. This study is the first to examine the impact of corporate governance committee presence and attributes on debt ratio while considering the moderating role of CEO overconfidence. This would further enrich prior research.