Moderating effect of capital structure on the relationship between corporate governance mechanisms and firm value: Evidence from India

While corporate misconducts highlight the need for effective corporate governance mechanisms, the degree to which such mechanisms impact firm value is unsettled in literature. We argue that board-centered mechanisms may appear impeded in isolation, as firm capital structure moderates the relationship between corporate governance mechanisms and firm value. We employ fixed effect panel models and GMM estimations on a sample of 306 non-financial Indian firms for 2013-2022 to uncover the standalone effects of capital structure and corporate governance mechanisms, along with their interaction effects, on firm value. Findings identify direct as well as moderating impacts of leverage on firm value for high-levered firms and large board size firms. However, for low-levered firms we find a direct but not moderating impact of leverage. There is no impact of leverage for small board size firms.