International Variations in Transparency and Capital Structure: Evidence from European Firms


  • The authors would like to thank C. Callahan, E. Mellander, M. Qi, G. Stadtmann, K. Thorburn, J. Thornton, X. Zhao, and their other colleagues for useful comments but remain solely responsible for the contents.


This paper documents the impact of national transparency regimes on corporate capital structure in 14 European countries. After controlling for relevant firm, industry, and national variables, we find that owner-manager agency cost-reducing transparency such as higher levels of analysts following is associated with lower corporate debt levels. In contrast, transparency that reduces owner-creditor agency costs that helps creditors control business risks (and creditors-to-owners wealth transfers), such as disclosure timeliness, institutional trading activities, and enforcement of anti-insider trading laws, are associated with higher corporate debt levels. Among other transparency measures, levels of financial and governance disclosures are negatively associated with debt ratios and higher levels of audit intensity and accounting disclosures are positively associated with debt ratios. Further, transparency factors are more important for large firms and for firms in services and high technology.