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Ownership structure, corporate governance and capital structure decisions of firms: Empirical evidence from Ghana

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  • Godfred A. Bokpin
  • Anastacia C. Arko
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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.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Studies in Economics and Finance.

    Volume (Year): 26 (2009)
    Issue (Month): 4 (October)
    Pages: 246-256

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    Handle: RePEc:eme:sefpps:v:26:y:2009:i:4:p:246-256

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    Web page: http://www.emeraldinsight.com

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    Related research

    Keywords: Capital structure; Corporate governance; Corporate ownership; Financing; Ghana;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Agyenim Boateng, 2004. "Determinants of capital structure: Evidence from international joint ventures in Ghana," International Journal of Social Economics, Emerald Group Publishing, vol. 31(1/2), pages 56-66, January.
    2. Vitaliy Zheka, 2005. "Corporate governance, ownership structure and corporate efficiency: the case of Ukraine," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 26(7), pages 451-460.
    3. Nigel Driffield & Vidya Mahambare & Sarmistha Pal, 2005. "How Ownership Structure Affects Capital Structure and Firm Performance? Recent Evidence from East Asia," Finance 0509028, EconWPA.
    4. Fernando Lefort & Eduardo Walker, 2000. "Ownership And Capital Structure Of Chilean Conglomerates:Facts And Hypotheses For Governance," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 3(1), pages 3-27.
    5. Joshua Abor & Nicholas Biekpe, 2005. "What Determines the Capital Structure of Listed Firms in Ghana?," The African Finance Journal, Africagrowth Institute, vol. 7(1), pages 37-48.
    6. Marianne Bertrand & Sendhil Mullainathan, 2003. "Enjoying the Quiet Life? Corporate Governance and Managerial Preferences," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1043-1075, October.
    7. Kim, Wi Saeng & Sorensen, Eric H., 1986. "Evidence on the Impact of the Agency Costs of Debt on Corporate Debt Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(02), pages 131-144, June.
    8. Bajaj, Mukesh & Chan, Yuk-Shee & Dasgupta, Sudipto, 1998. "The Relationship between Ownership, Financing Decisions and Firm Performance: A Signaling Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 723-44, August.
    9. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    10. Anthony Kyereboah-coleman & Nicholas Biekpe, 2006. "Corporate Governance And Financing Choices Of Firms: A Panel Data Analysis," South African Journal of Economics, Economic Society of South Africa, vol. 74(4), pages 670-681, December.
    11. Anderson, Ronald C. & Mansi, Sattar A. & Reeb, David M., 2004. "Board characteristics, accounting report integrity, and the cost of debt," Journal of Accounting and Economics, Elsevier, vol. 37(3), pages 315-342, September.
    12. Mehran, Hamid, 1992. "Executive Incentive Plans, Corporate Control, and Capital Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(04), pages 539-560, December.
    13. Berger, Philip G & Ofek, Eli & Yermack, David L, 1997. " Managerial Entrenchment and Capital Structure Decisions," Journal of Finance, American Finance Association, vol. 52(4), pages 1411-38, September.
    14. Julio Pindado & Chabela De La Torre, 2011. "Capital Structure: New Evidence from the Ownership Structure," International Review of Finance, International Review of Finance Ltd., vol. 11(2), pages 213-226, 06.
    15. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
    16. Zwiebel, Jeffrey, 1996. "Dynamic Capital Structure under Managerial Entrenchment," American Economic Review, American Economic Association, vol. 86(5), pages 1197-1215, December.
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