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How does ownership structure affect capital structure and firm value?

Author

Listed:
  • Nigel Driffield
  • Vidya Mahambare
  • Sarmistha Pal

Abstract

The present paper examines the effects of ownership structures on capital structure and firm valuation. It argues that the effects of separation of control from cash flow rights on capital structure and firm value also depend on the separation of control from management as well as on legal rules and enforcement defining investors' protection. We obtain firm-level panel data (three stage least squares, 3SLS) estimates from four of the East Asian countries worst affected by the last crisis. There is evidence that the general wisdom that higher control than cash flow rights may lower firm value may be reversed among owner-managed family firms in the sample countries. Copyright (c) 2007 The Authors Journal compilation (c) 2007 The European Bank for Reconstruction and Development .

Suggested Citation

  • Nigel Driffield & Vidya Mahambare & Sarmistha Pal, 2007. "How does ownership structure affect capital structure and firm value?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15, pages 535-573, July.
  • Handle: RePEc:bla:etrans:v:15:y:2007:i::p:535-573
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    References listed on IDEAS

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    1. Villalonga, Belen & Amit, Raphael, 2006. "How do family ownership, control and management affect firm value?," Journal of Financial Economics, Elsevier, vol. 80(2), pages 385-417, May.
    2. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    3. Friend, Irwin & Lang, Larry H P, 1988. " An Empirical Test of the Impact of Managerial Self-interest on Corporate Capital Structure," Journal of Finance, American Finance Association, vol. 43(2), pages 271-281, June.
    4. repec:hrv:faseco:30728041 is not listed on IDEAS
    5. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    6. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 1995. "Stock market development and firm financing choices," Policy Research Working Paper Series 1461, The World Bank.
    7. Marsh, Paul, 1982. " The Choice between Equity and Debt: An Empirical Study," Journal of Finance, American Finance Association, vol. 37(1), pages 121-144, March.
    8. Robert L. Lippert & William T. Moore, 1995. "Monitoring Versus Bonding: Shareholder Rights and Management Compensation," Financial Management, Financial Management Association, vol. 24(3), Fall.
    9. 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.
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    Cited by:

    1. Nhung, Lai Thi Phuong & Okuda, Hidenobu, 2015. "Effects of state ownership on companies’ capital structure and profitability: Estimation analysis before and after the Lehman shock," Journal of Asian Economics, Elsevier, vol. 38(C), pages 64-78.
    2. Ramiz ur Rehman & Inayat Ullah Mangla, 2010. "Corporate Governance and Performance of Financial Institutions in Pakistan: A Comparison between Conventional and Islamic Banks in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 461-475.
    3. Irene Wei Kiong Ting & Hooi Hooi Lean & Qian Long Kweh & Noor Azlinna Azizan, 2016. "Managerial overconfidence, government intervention and corporate financing decision," International Journal of Managerial Finance, Emerald Group Publishing, vol. 12(1), pages 4-24, February.
    4. Ines Chaabouni & Anis Jarboui, 2016. "Effect of board`s skills on stakeholder value," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 6(4), pages 84-100, April.
    5. repec:taf:oabmxx:v:3:y:2016:i:1:p:1272815 is not listed on IDEAS
    6. Khaled Hussainey & Khaled Aljifri, 2012. "Corporate governance mechanisms and capital structure in UAE," Journal of Applied Accounting Research, Emerald Group Publishing, vol. 13(2), pages 145-160, September.
    7. Vivake Anand & Kamran Ahmed Soomro & Suneel Kumar Solanki, 2016. "Determinants of Credit Rating and Optimal Capital Structure among Pakistani Banks," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 19(60), pages 169-182, June.

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