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

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.