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

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  • Nigel Driffield

    (Aston Business School)

  • Vidya Mahambare

    (Cardiff Business School)

  • Sarmistha Pal

    (Brunel University)

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), though illustrate the importance of allowing for simultaneity between capital structure and firm performance.

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File URL: http://128.118.178.162/eps/fin/papers/0505/0505012.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0505012.

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Length: 44 pages
Date of creation: 09 May 2005
Date of revision:
Handle: RePEc:wpa:wuwpfi:0505012

Note: Type of Document - pdf; pages: 44
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Web page: http://128.118.178.162

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References

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Citations

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Cited by:
  1. Prasetyantoko, Agustinus, 2008. "Financing Policies and Firm Vulnerability in Indonesia," MPRA Paper 6533, University Library of Munich, Germany.
  2. Nigel Driffield & Sarmistha Pal, 2010. "Evolution of capital structure in east Asia-corporate inertia or endeavours?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 173(1), pages 1-29.
  3. 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.
  4. Leandro Medina, 2012. "Spring Forward or Fall Back? The Post-Crisis Recovery of Firms," IMF Working Papers 12/292, International Monetary Fund.
  5. Godfred A. Bokpin & Anastacia C. Arko, 2009. "Ownership structure, corporate governance and capital structure decisions of firms: Empirical evidence from Ghana," Studies in Economics and Finance, Emerald Group Publishing, vol. 26(4), pages 246-256, October.
  6. Coricelli, Fabrizio & Driffield, Nigel & Pal, Sarmistha & Roland, Isabelle, 2012. "When does leverage hurt productivity growth? A firm-level analysis," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1674-1694.

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