Debt and Entrenchment: Evidence from Thailand and Indonesia

This paper examines the relation between debt and corporate governance in emerging market economies. We use firm-level panel data of listed companies from Thailand and Indonesia to analyze the firm's corporate financing behaviors in connection with its corporate governance arrangements. Our results show that the debt structure is linked to the corporate governance. We find that weaker corporate governance firms, in particular measured by the entrenchment effects, tend to have a higher debt level. The evidence is relatively stronger during the crisis period. Our results also shed light on the importance of the country-specific institutional settings that would affect the empirical results.