External financing needs, corporate governance, and firm value

Wei Peng Chen*, Huimin Chung, Tsui Ling Hsu, Soushan Wu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

25 Scopus citations


Manuscript Type: Empirical. Research Question/Issue: We set out in this study to explore the overall impact of external financing needs on corporate governance and firm value, arguing that external financing needs have extremely important impacts on corporate governance, essentially because external financing can prove to be very costly, largely as a result of asymmetric information. Thus, we suggest that improvements in corporate governance of firms with external financing needs could help to reduce costs of outside equity financing. Research Findings/Insights: Our results reveal that it is in fact firm valuation that has an effect on governance practices, as opposed to the reverse, and that external financing needs appear to strengthen the influence of the quality of corporate governance practices on firm value. Theoretical/Academic Implications: The external forces considered in this study are product market competition, investment opportunities, and external financing needs, with particular emphasis being placed upon the impact of external financing needs, since this relates directly to outside shareholders. Given that poor corporate governance practices signal higher asymmetric information costs, and thus, lead to an increase in the costs of raising external capital, it is important to gain a comprehensive understanding of the impact of external financing needs on firm value and corporate governance. Practitioner/Policy Implications: Our results demonstrate the important implications that corporate governance practices have for those firms with a particularly strong need for external equity, and the fact that external financing needs provide incentives for firms to seek out ways of making improvements to the overall quality of their corporate governance practices.

Original languageEnglish
Pages (from-to)234-249
Number of pages16
JournalCorporate Governance: An International Review
Issue number3
StatePublished - 1 Jan 2010


  • Corporate governance
  • External financing needs
  • Firm value
  • Governance-value relationship

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