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<p>The study examines how internal corporate governance—specifically, board independence and gender diversity—influences debt financing and insolvency risk in the emerging market context. Building on the perspectives of board monitoring and institutions, we develop our conceptual framework, emphasizing the role of internal board mechanisms in financial risk-taking. We used a sample of 986 limited companies for the period 2011 to 2020. We started our analysis using panel regressions to document the baseline association of board monitoring on debt financing and insolvency risk. Subsequently propensity score matched difference- in -diffeence (PSM-DID) model was used, to exploit the impact of governance reforms introduced under the Companies Act 2013 as a quasi-natural experiment and provide causal evidence on regulation induced changes. The PSM-DID results show that strengthened board monitoring, driven by regulatory changes, leads to a reduction in the use of debt financing and a decrease in insolvency risk among the treated firms. Further, we explored the two channels through which board monitoring might have achieved these outcomes, viz. substitution channel for board independence and underinvestment channel for board gender diversity. The results show that the board independence substitutes for debt monitoring in the post-regulation period, but board gender diversity does not lead to underinvestment. The findings contribute to the corporate governance literature by demonstrating how regulatory intervention influences the effectiveness of internal board mechanisms in shaping firms’ financial risk-taking behaviour. By integrating board monitoring with institutional and regulatory perspectives, the study highlights the complementary role of formal regulation in enhancing governance outcomes, particularly in emerging market environments. For policymakers, the results underline the importance of enforcing requirements for board independence and diversity, while firms and investors may also find value in enhanced board oversight as an avenue for mitigating excessive leverage and financial distress.</p>

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How do regulation and firm size influence the board monitoring impact over debt financing and insolvency risk? Evidence from India

  • 期刊论文

  • 发表日期：

    2026年6月29日

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  • Brahmadev Panda,
  • Anu Antony,
  • Garima Sisodia,
  • Omar Al Farooque

摘要

The study examines how internal corporate governance—specifically, board independence and gender diversity—influences debt financing and insolvency risk in the emerging market context. Building on the perspectives of board monitoring and institutions, we develop our conceptual framework, emphasizing the role of internal board mechanisms in financial risk-taking. We used a sample of 986 limited companies for the period 2011 to 2020. We started our analysis using panel regressions to document the baseline association of board monitoring on debt financing and insolvency risk. Subsequently propensity score matched difference- in -diffeence (PSM-DID) model was used, to exploit the impact of governance reforms introduced under the Companies Act 2013 as a quasi-natural experiment and provide causal evidence on regulation induced changes. The PSM-DID results show that strengthened board monitoring, driven by regulatory changes, leads to a reduction in the use of debt financing and a decrease in insolvency risk among the treated firms. Further, we explored the two channels through which board monitoring might have achieved these outcomes, viz. substitution channel for board independence and underinvestment channel for board gender diversity. The results show that the board independence substitutes for debt monitoring in the post-regulation period, but board gender diversity does not lead to underinvestment. The findings contribute to the corporate governance literature by demonstrating how regulatory intervention influences the effectiveness of internal board mechanisms in shaping firms’ financial risk-taking behaviour. By integrating board monitoring with institutional and regulatory perspectives, the study highlights the complementary role of formal regulation in enhancing governance outcomes, particularly in emerging market environments. For policymakers, the results underline the importance of enforcing requirements for board independence and diversity, while firms and investors may also find value in enhanced board oversight as an avenue for mitigating excessive leverage and financial distress.