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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

    (Department of Economics & Finance, Brunel University)

Abstract

Despite the seminal work of Claessens et al. (2002), role of ownership structure on capital structure and firm performance in East Asian corporattions remains much unexplored. Within the framework of Bajaj et al. (1998), the present paper empirically examines the effects of a controlling manager and degree of monitoring (a measure of moral hazard) on capital structure and firm performance among a sample of Korean and Indonesian firms. In doing so, we not only allow for simultaneity between capital structure and firm performance (a la Berger and di Patti, 2003), but also the non-linearity in these relationships. Our empirical results in essence depend on whether a firm is run by a family and also whether there is a manager who is also a controlling owner. There is evidence that family ownership could mitigate the problem of moral hazard though it could exacerbate the problem of over-lending in our samples. Also the effects of ownership structure on firm performance cannot be delineated from its effects on leverage. As such, the results presented here confirm and extend the essential findings of Claessens et al. (2002) and Bajaj et al. (1998).

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File URL: http://128.118.178.162/eps/fin/papers/0509/0509028.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0509028.

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Length: 44 pages
Date of creation: 27 Sep 2005
Date of revision:
Handle: RePEc:wpa:wuwpfi:0509028

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

Related research

Keywords: Asian Crisis; Corporate Governance; Capital structure; Firm performance; Expropriation of minority shareholders; 3SLS estimates; Simultaneity bias; Non-linearity.;

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References

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Citations

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Cited by:
  1. 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.
  2. 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.
  3. Leandro Medina, 2012. "Spring Forward or Fall Back? The Post-Crisis Recovery of Firms," IMF Working Papers 12/292, International Monetary Fund.
  4. Prasetyantoko, Agustinus, 2008. "Financing Policies and Firm Vulnerability in Indonesia," MPRA Paper 6533, University Library of Munich, Germany.
  5. 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.
  6. 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.

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