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

Listed author(s):
  • Nigel Driffield

    (Aston Business School)

  • Vidya Mahambare

    (Cardiff Business School)

  • Sarmistha Pal

    (Department of Economics & Finance, Brunel University)

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://econwpa.repec.org/eps/fin/papers/0509/0509028.pdf
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Paper provided by EconWPA in its series Finance with number 0509028.

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Length: 44 pages
Date of creation: 27 Sep 2005
Handle: RePEc:wpa:wuwpfi:0509028
Note: Type of Document - pdf; pages: 44. Revised version
Contact details of provider: Web page: http://econwpa.repec.org

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