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Article
Publication date: 8 March 2013

Jonchi Shyu

This study seeks to examine how agency problems and internal capital markets in group‐affiliated firms are mutually influenced by the ownership structure, capital structure

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Abstract

Purpose

This study seeks to examine how agency problems and internal capital markets in group‐affiliated firms are mutually influenced by the ownership structure, capital structure, and performance. It also aims to examine the endogeneity in group affiliation.

Design/methodology/approach

Using panel data, this study employs two‐stage least squares regression with the instrumental variable technique to examine the relationship among capital structure, ownership structure, and performance of group‐affiliated firms. Simultaneous equation models are constructed to identify the effects of interdependent decisions.

Findings

The empirical results indicate a U‐shaped relationship between insider ownership and performance. Moreover, the alignment of ownership and control rights determines the relationship between ownership structure and performance for group‐affiliated firms. The capital structure decisions of group‐affiliated firms are independent of firm performance and insider ownership, supporting the view that capital structure decisions of group‐affiliated firms are determined by the overall characteristics of the business group, rather than those of the individual firms.

Practical implications

Business groups can reduce the agency problems that occur in group affiliation by increasing the insider ownership (after a certain tunneling point), debt financing, and dividend payout.

Originality/value

Previous studies have paid little attention to the effects of the agency problem and the internal capital market on group affiliation. Whether endogeneity is a consequence of the common characteristics of group affiliation or a result of the simultaneity existing among ownership structure, capital structure, and performance is also unknown. This paper fills some of these gaps.

Article
Publication date: 2 September 2020

I. Wayan Widnyana, I. Gusti Bagus Wiksuana, Luh Gede Sri Artini and Ida Bagus Panji Sedana

This study aims to analyze and explain the effect of financial architecture (with three dimensions: ownership structure, capital structure and corporate governance) and

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Abstract

Purpose

This study aims to analyze and explain the effect of financial architecture (with three dimensions: ownership structure, capital structure and corporate governance) and intangible assets on performance financial and corporate value in the Indonesian capital market.

Design/methodology/approach

This research was conducted on nonfinancial sector companies that were registered in the Indonesian capital market, namely Indonesia Stock Exchange (IDX) in 2015. This study used quantitative data and used secondary data sources, meaning that data were obtained, collected and processed from other parties. In this study, the hypothesis testing of the effect of financial architecture (included the dimensions of ownership structure, capital structure and corporate governance) and intangible assets on financial performance and corporate value using path analysis was performed.

Findings

The results of this study have provided findings that follow the research model that has been built (1) This research has been able to provide a theoretical model of the influence of financial architecture (with dimensions of ownership structure, capital structure and corporate governance), intangible assets, board processes on financial performance and company value in the Indonesian capital market. (2) To develop a theoretical model about the effect of corporate governance on financial performance in accordance with the two-tier system adopted by Indonesia. (3) An empirical study of the concept of financial architecture put forward by Myers (1999).

Originality/value

This research update lies in the research variable, which determines one value of the financial architecture variable comprehensively, combines the financial architecture variable and intangible assets to then be tested for its effect on company value and the use of the financial process variable as a board process as an intervening variable.

Details

International Journal of Productivity and Performance Management, vol. 70 no. 7
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 17 October 2008

Basil Al‐Najjar and Peter Taylor

The study aims to investigate the comparatively under‐researched relationship between ownership structure and capital structure in an emerging market. It is also one of…

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Abstract

Purpose

The study aims to investigate the comparatively under‐researched relationship between ownership structure and capital structure in an emerging market. It is also one of the first studies to apply both single and reduced‐form equation methods using a panel data approach. Design/methodology/approach – The study applies econometrics modelling using both single equation and reduces equation models for panel data.

Findings

The results demonstrate that Jordanian firms follow the same determinants of capital structure as occur in developed markets, namely: profitability, firm size, growth rate, market‐to‐book ratio, asset structure and liquidity. In addition, institutional ownership structure is found to be determined by: assets structure, business risk (BR), growth opportunities and firm size. Finally, the results reveal that assets tangibility, firm size, growth opportunities and BR are considered to be joint determinants of ownership structure and capital structure.

Practical implications

The practical implication of the study is that investors and managers should consider both capital structure and ownership structure when they take their investment decisions.

Originality/value

This is the first study of the interaction between institutional ownership and capital structure in Jordan where there are differences, as regards institutional and financial structures, relative to those in developed markets.

Details

Managerial Finance, vol. 34 no. 12
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 20 April 2015

Omar Farooq

This paper aims to document how does ownership concentration, a proxy for agency conflicts, affect capital structure of firms in emerging markets. Agency relationship…

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Abstract

Purpose

This paper aims to document how does ownership concentration, a proxy for agency conflicts, affect capital structure of firms in emerging markets. Agency relationship between insiders and outsiders has the potential to influence corporate decision-making which, in turn, impacts firm characteristics such as leverage.

Design/methodology/approach

This paper uses pooled regression analysis to document the effect of ownership concentration on capital structure in the Middle East and North Africa (MENA) region (Morocco, Egypt, Saudi Arabia, United Arab Emirates, Jordan, Kuwait and Bahrain), during the period between 2005 and 2009.

Findings

The authors show that ownership concentration negatively affects capital structure. The results also show that for a given level of ownership concentration, the proportion of debt in capital structure goes up as information asymmetries decrease. Finally, the results show that for a given ownership concentration, it is the growth firms with low information asymmetries that have a higher proportion of debt in capital structure.

Research limitations/implications

The authors argue that information asymmetries associated with ownership concentration minimize the ability of firms to raise debt, thereby resulting in a negative relationship between ownership concentration and capital structure. Furthermore, reluctance on the part of controlling shareholders to accumulate excess leverage to minimize non-diversifiable risk also negatively influences capital structure.

Originality/value

Most of the prior studies on the relationship between ownership concentration and capital structure have been conducted in relatively more developed markets. An important market that has failed to attract attention regarding this issue is the MENA. This paper is an attempt to fill this gap by documenting the relationship between the two in the MENA region.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 8 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 30 April 2020

Shayan Farhangdoust, Mahdi Salehi and Homa Molavi

The purpose of the present paper is to examine the trade-off relationship between managerial ownership and corporate debts and whether this relationship is moderated by…

Abstract

Purpose

The purpose of the present paper is to examine the trade-off relationship between managerial ownership and corporate debts and whether this relationship is moderated by ownership structure and corporate tax rates, particularly in a transition and emerging market whose unique institutional characteristics considerably differ from those prevailing both in the West and East markets.

Design/methodology/approach

This research is semi-empirical in terms of method and practical in terms of purpose. The authors test their hypotheses by using simultaneous equations system methodology with two- and three-stages least squares regression (2SLS and 3SLS) and panel data technics on a sample of 952 listed companies on the Tehran Stock Exchange during 2011-2018.

Findings

The findings indicate that, contrary to the current line of research, there is no trade-off relationship between managerial ownership and debt concerning the reduction of agency costs. Likewise, the study finds no convincing evidence that either the controlling shareholder or the corporate tax rate could influence or moderate this interrelationship. The conjecture lies in the fact that the fundamental environmental variations between the Tehran Stock Exchange and the institutional assumptions underpinning the Western models have led to the formation of such unexpected results.

Research limitations/implications

The implications drawn from this study are constrained by two primary limitations. First, the present study is conducted in an Iranian setting; therefore, the data used for the study only contain companies listed on the Tehran Stock Exchange. The utilization of listed companies on the Tehran Stock Exchange is likely to affect the generalizability of the study in an international context. Second, in this study, we were unable to extend the sample time period because of some major deficiencies in the Tehran Stock Exchange library and its supplementary software. The usage of an extended time period could have provided more generalizable results. However, extended time period, per se, may impair the validity of the results as well.

Originality/value

Because the fundamental institutional assumptions underpinning the Western and even East Asia capital structure models are not valid in the institutional environment of Iran, the findings of this study could provide substantial implications for the understanding of agency costs and capital structure literature. These significant institutional and ownership differences are the factors affecting firms’ leverage and capital choice decisions. Indeed, this study has laid some groundwork upon which a more detailed evaluation of the Iranian firms’ capital structure could be based. In addition, the examination of such relations may provide the ground for sound decision-making by various interested users of financial and accounting information.

Article
Publication date: 2 October 2009

Godfred A. Bokpin and Anastacia C. Arko

The purpose of this paper is to examine the effect of ownership structure and corporate governance on capital structure decisions of firms on the Ghana Stock Exchange (GSE).

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Abstract

Purpose

The purpose of this paper is to examine the effect of ownership structure and corporate governance on capital structure decisions of firms on the Ghana Stock Exchange (GSE).

Design/methodology/approach

To analyze the impact of ownership structure and corporate governance on firms' financing decisions, unbalanced panel data covering a period from 2002 to 2007 is employed using the seemingly unrelated regression approach to mitigate the effects of multicollinearity among the regressors.

Findings

The regression results reveal that managerial shareholding significantly positively influences the choice of long‐term debt over equity. Among the corporate governance variables, board size is found to be positively and statistically significantly related to capital structure choices. Firm level factors such as volatility in earnings, asset tangibility, dividend payout ratio and profitability are significant determinants of corporate capital structure decisions on the GSE. The findings are largely consistent with theories of capital structure decisions observed in the literature.

Originality/value

The main value of this paper is to provide a comprehensive understanding of the impact of forms of ownership and other governance practices on capital structure decisions of firms from an emerging market perspective.

Details

Studies in Economics and Finance, vol. 26 no. 4
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 7 July 2020

Yi Feng, Abeer Hassan and Ahmed A. Elamer

This paper aims to contribute to the existing capital structure and board structure literature by examining the relationship among corporate governance, ownership structure

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Abstract

Purpose

This paper aims to contribute to the existing capital structure and board structure literature by examining the relationship among corporate governance, ownership structure and capital structure.

Design/methodology/approach

The paper uses a panel data of 595 firm-year observations from a unique and comprehensive data set of 119 Chinese real estate listed firms from 2014 to 2018. It uses fixed effect and random effect regression analysis techniques to examine the hypotheses.

Findings

The results show that the board size, ownership concentration and firm size have positive influences on capital structure. State ownership and firm profitability have inverse influences on capital structure.

Research limitations/implications

The findings suggest that better-governed companies in the real estate sector tend to have better capital structure. These findings highlight the unique Chinese context and also offer regulators a strong incentive to pursue corporate governance reforms formally and jointly with the ownership structure. Finally, the results suggest investors the chance to shape detailed expectations about capital structure behavior in China. Future research could investigate capital structure using different arrangement, conducting face-to-face meetings with the firm’s directors and shareholders.

Practical implications

The findings offer support to corporate managers and investors in forming or/and expecting an optimal capital structure and to policymakers and regulators for ratifying laws and developing institutional support to improve the effectiveness of corporate governance mechanisms.

Originality/value

This paper extends, as well as contributes to the current capital structure and corporate governance literature, by proposing new evidence on the effect of board structure and ownership structure on capital structure. The results will help policymakers in different countries in estimating the sufficiency of the available corporate governance reforms to improve capital structure management.

Details

International Journal of Accounting & Information Management, vol. 28 no. 4
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 31 December 2021

Tahar Tayachi, Ahmed Imran Hunjra, Kirsten Jones, Rashid Mehmood and Mamdouh Abdulaziz Saleh Al-Faryan

Ownership structure deals with internal corporate governance mechanism, which plays important role in minimizing conflict of interests between shareholders and management…

Abstract

Purpose

Ownership structure deals with internal corporate governance mechanism, which plays important role in minimizing conflict of interests between shareholders and management Ownership structure is an important mechanism that influences the value of firm, financing and dividend decisions. This paper aims to examine the impact of the ownership structures, i.e. managerial ownership, institutional ownership on financing and dividend policy.

Design/methodology/approach

The authors use panel data of manufacturing firms from both developed and developing countries, and the generalized method of moments (GMM) is applied to analyze the results. The authors collect the data from DataStream for the period of 2010 to 2019.

Findings

The authors find that managerial ownership and ownership concentration have significant and positive effects on debt financing, but they have significant and negative effects on dividend policy. Institutional ownership shows a positive impact on financing decisions and dividend policy for sample firms.

Originality/value

This study fills the gap by proving the policy implications for both firms and investors, as managers prefer debt financing, but at the same time try to ignore dividend payment. Therefore, investors may not invest in firms with a higher proportion of managerial ownership and may choose to invest more in institutional ownership, which lowers the agency cost.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 1 March 2013

Santanu K. Ganguli

Based on the agency theory, the purpose of this paper is to theoretically argue and empirically investigate how ownership structure impacts the capital structure of the…

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Abstract

Purpose

Based on the agency theory, the purpose of this paper is to theoretically argue and empirically investigate how ownership structure impacts the capital structure of the listed mid‐cap companies in India and whether the capital structure as exogenous variable has a role in determining ownership structure as well.

Design/methodology/approach

Simultaneity between capital structure and ownership structure is checked through Hausman specification test on endogeneity. Fixed effect panel regression model is used to analyze five years of data (2005‐2009) on the sample units, to find the relation between leverage and ownership structure after controlling for profitability, risk, tangibility, growth and size.

Findings

Empirical results on Indian firms suggest that the ownership structure does impact capital structure but not the vice versa. Consistent with theoretical prediction empirical results reveal that the leverage is positively related to concentrated shareholding and has a negative relation with diffuseness of shareholding after controlling for profitability, risk, tangibility, growth and size. The findings are consistent with “managerial entrenchment hypothesis” and “pecking order theory” of capital structure.

Practical implications

The findings of the paper will enable the practitioners and analysts to understand as to why, in the bank and financial institution‐dominated debt financing system in India, leverage is closely associated with concentrated ownership pattern and why retained earning is a preferred vehicle of financing for the firms with diffused shareholding.

Originality/value

The results of the study enrich the literature on capital structure, agency cost and corporate governance issues in several ways.

Details

Studies in Economics and Finance, vol. 30 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 16 August 2021

Razali Haron, Naji Mansour Nomran, Anwar Hasan Abdullah Othman, Maizaitulaidawati Md Husin and Ashurov Sharofiddin

This study aims to evaluate the impact of firm, industry level determinants and ownership concentration on the dynamic capital structure decision in Indonesia and analyses…

Abstract

Purpose

This study aims to evaluate the impact of firm, industry level determinants and ownership concentration on the dynamic capital structure decision in Indonesia and analyses the governing theories.

Design/methodology/approach

This study uses the dynamic panel model of generalized method of moments-System (one-step and two-step) by using a panel data from 2000 to 2014 to examine the relationship between the determinants and leverage. The results are robust to the various definitions of leverage, heterogeneity, autocorrelation, multicollinearity and endogeneity concern.

Findings

Growing firms and firms operating in a highly concentrated industry use high level of debt, taking advantage of the tax shield (trade-off theory). However, if the firms are operating in a highly dynamic environment, they take on less debt as to avoid bankruptcy risk. Firms in Indonesia opt for debt financing perhaps to act as a controlling mechanism to mitigate agency conflicts that may exist between the large controlling shareholders and the minority. Aged and highly profitable firms with high tangible and intangible assets and liquidity level operating in a high dynamic environment follow the pecking order theory.

Research limitations/implications

This study does not perform each industry regression individually. All the industries are pooled together, as the main focus of this study is to examine the factors affecting leverage of firms in general without giving particular attention to individual industry.

Originality/value

The insights on the impact of ownership concentration and industry characteristics are novel especially on Indonesia, thus fill the gap in the literature.

Details

Journal of Asia Business Studies, vol. 15 no. 5
Type: Research Article
ISSN: 1558-7894

Keywords

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