The effect of corporate integrity on capital structure: insights from earnings conference calls

Information from the abstract

Our study examines the influence of corporate integrity on capital structure decisions using a novel text-based measure derived from sophisticated textual analysis of earnings conference calls. Using a large sample of U.S. firms spanning 2001–2018, we document a robust negative association between corporate integrity and leverage. Our results are consistent with the interpretation that firms with stronger corporate integrity tend to adopt more conservative financial policies, viewing debt default as a serious ethical violation. We further analyze interaction effects and find that this negative association is significantly weaker for firms with substantial cash holdings and stronger liquidity positions, suggesting that financial flexibility mitigates the costs of leverage even for high-integrity firms. A comprehensive set of robustness checks, including propensity score matching, entropy balancing, and instrumental-variable analyses, supports the stability of our findings. Finally, we show that leverage attributable to corporate integrity is positively related to firm value, as measured by Tobin’s Q. Overall, our study highlights the economically meaningful role of corporate culture, particularly integrity, in shaping capital structure choices and firm value.

Why this record is monitored

This record has an Impact Signal of 89/100 based on recency, source, collaboration, and bibliographic signals. It prioritizes monitoring and is not a judgment of research quality.

Related topics: Corporate Finance and Governance · Financial Analysis and Corporate Governance · Financial Distress and Bankruptcy Prediction