Unseg | Good Governance | Poor Governance | ||

Variables | Expected | Expected | Expected | Explanation for Expected Results |

LTS | Positive | ? | ? | Consistent with Frank and Goyal (2009) [30] we expect a positive relationship to hold for Unseg data. The relationship is unclear for good and poor governance firms. |

MTB | Negative | Negative | Negative | MTB represents the growth opportunities available to the firm and the covenants placed by debt makes borrowing more costly for high growth firm. A negative relationship is expected for all three sets of data. |

CAPEX | Positive | ? | ? | Consistent with Frank and Goyal (2003) [49] CAPEX is expected to be positively related with financial leverage for the Unseg data. The relationship for good and poor governance firms is ambiguous. |

INTANG | Positive | Positive | Positive | Intangibility is expected to have a positive relationship with financial leverage for all three sets of data as observed in earlier studies. |

CF | Positive | ? | ? | Cash flows are expected to be positively related to financial leverage for the Unseg data but given the expected results for profits, the anticipation for good and poor governance firms is ambiguous. |

RISK | Negative | Negative | Negative | Volatility of cash flows is expected to be negatively related to financial leverage for the three sets of data as cash flow uncertainty acts as a hurdle in borrowing money. |

MED | Positive | Positive | Positive | Managers follow industry standard in setting up leverage ratios and industry median leverage is expected to be positively related to financial leverage. |

NWC | Negative | Negative | Negative | Net working capital is expected to be negatively related to financial leverage as it represents short term liquidity of the firm. |