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

Author

Listed:
  • 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).

Suggested Citation

  • Nigel Driffield & Vidya Mahambare & Sarmistha Pal, 2005. "How Ownership Structure Affects Capital Structure and Firm Performance? Recent Evidence from East Asia," Finance 0505010, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0505010
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    References listed on IDEAS

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    Cited by:

    1. Leandro Medina, 2012. "Spring Forward or Fall Back? The Post-Crisis Recovery of Firms," IMF Working Papers 12/292, International Monetary Fund.
    2. Nhung LE, 2017. "The impact of family ownership status on determinants of leverage. Empirical evidence from South East Asia," Working Papers of LaRGE Research Center 2017-09, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    3. 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.
    4. 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.
    5. 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.
    6. Prasetyantoko, Agustinus, 2008. "Financing Policies and Firm Vulnerability in Indonesia," MPRA Paper 6533, University Library of Munich, Germany.
    7. 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.
    8. 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.
    9. 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.
    10. NAKABAYASHI, Masaki, 2016. "Self-fulfilling Distortion and Ownership Structure: Market Discipline and Owner fs Dominance at the Dawn of the Japanese Capitalism," ISS Discussion Paper Series (series F) f181, Institute of Social Science, The University of Tokyo, revised 05 Feb 2018.
    11. Chernenko, Demid, 2018. "Capital Structure and Oligarch Ownership," MPRA Paper 83641, University Library of Munich, Germany.

    More about this item

    Keywords

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

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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