This chapter covers several topics related to the links between capital structure and corporate governance. The chapter begins by discussing examples of famous corporate scandals including Enron and Nortel. It then presents the debt and discipline idea that argues that financing with debt puts extra pressure on managers and prevents empire-building. The chapter then explains the role of capital structure in providing optimal incentive for managers who trade-off their own costs and benefits including their incentive regarding earnings manipulation. At the end, the chapter discusses two interesting new areas of research: connections between capital structure and employees/bargaining issues, shareholders-based vs. stakeholders-based corporate governance, and the concept of imperfect financing contracts.