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How Ownership Structure Affects Capital Structure and Firm Performance? Recent Evidence from East Asia

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Author Info
Nigel Driffield (Aston Business School)
Vidya Mahambare (Cardiff Business School)
Sarmistha Pal (Brunel University)

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Abstract

Despite the seminal work of Claessens et al. (2002), who highlighted the role of ownership structure on firm performance in East Asia, the relationship between capital structure and ownership remains much unexplored. This is important, given recent empirical and theoretical work linking capital structure and performance. The novelty of the present paper is that in examining the effects of ownership concentration on capital structure and firm performance, it not only allows for simultaneity between capital structure and firm performance, but also controls for one possible source of moral hazard related to the higher voting rights relative to cash flow rights. The paper clearly establishes that results are rather country-specific and the effects of ownership structure on firm performance cannot be delineated from its effects on leverage. More interestingly, these results highlight that higher voting rights could pose some moral hazard problem if there is a controlling manager shareholder called Cronyman in our analysis. Evidently family ownership could mitigate some of these moral hazard problems, though it could exacerbate the problem of over-lending. As such, the results presented here confirm and extend the essential findings of Claessens et al. (2002).

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Paper provided by EconWPA in its series Finance with number 0505010.

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Length: 45 pages
Date of creation: 09 May 2005
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Handle: RePEc:wpa:wuwpfi:0505010

Note: Type of Document - pdf; pages: 45
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Related research
Keywords: Asian Crisis; Corporate Governance; Capital structure; Firm performance; Expropriation of minority shareholders; Moral hazard; 3SLS estimates; Simultaneity bias; Non-linearity.;

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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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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    Other versions:
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Full references

Cited by:
(explanations, 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.)

  1. Jayati Sarkar & Subrata Sarkar, 2005. "Debt and corporate governance in emerging economies: Evidence from India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2005-007, Indira Gandhi Institute of Development Research, Mumbai, India. [Downloadable!]
  2. Nigel Driffield & Sarmistha Pal, 2008. "Evolution of Capital Strcture in East Asia: Corporate Inertia or Endeavours?," CEDI Discussion Paper Series 08-04, Centre for Economic Development and Institutions(CEDI), Brunel University. [Downloadable!]
    Other versions:
  3. Prasetyantoko, Agustinus, 2008. "Financing Policies and Firm Vulnerability in Indonesia," MPRA Paper 6533, University Library of Munich, Germany. [Downloadable!]
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