IDEAS home Printed from https://ideas.repec.org/p/edb/cedidp/07-04.html
   My bibliography  Save this paper

How Does Ownership Structure Affect Capital Structure and Firm Value? Recent Evidence from East Asia

Author

Listed:
  • Nigel Driffield
  • Sarmistha Pal

Abstract

The present paper examines the effects of ownership structures on capital structure and firm valuation and 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 legal rules and enforcement defining investors’ protection. We obtain firm-level panel data 3SLS estimates from four 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.

Suggested Citation

  • Nigel Driffield & Sarmistha Pal, 2007. "How Does Ownership Structure Affect Capital Structure and Firm Value? Recent Evidence from East Asia," CEDI Discussion Paper Series 07-04, Centre for Economic Development and Institutions(CEDI), Brunel University.
    • Handle: RePEc:edb:cedidp:07-04
    as

    Download full text from publisher

    File URL: http://www.brunel.ac.uk/__data/assets/pdf_file/0006/342681/CEDI_07-04.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Badi H. Baltagi, 2021. "Simultaneous Equations with Error Components," Springer Texts in Business and Economics, in: Econometric Analysis of Panel Data, edition 6, chapter 0, pages 157-186, Springer.
    2. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75(2), pages 123-123.
    3. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
    4. Driffield, Nigel & Pal, Sarmistha, 2001. "The East Asian crisis and financing corporate investment: is there a cause for concern?," Journal of Asian Economics, Elsevier, vol. 12(4), pages 507-527.
    5. Grossman, Sanford J. & Hart, Oliver D., 1988. "One share-one vote and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 175-202, January.
    6. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
    7. 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.
    8. 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.
    9. 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.
    10. Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January.
    11. 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.
    12. Himmelberg, Charles P. & Hubbard, R. Glenn & Palia, Darius, 1999. "Understanding the determinants of managerial ownership and the link between ownership and performance," Journal of Financial Economics, Elsevier, vol. 53(3), pages 353-384, September.
    13. Randall K. Morck & David A. Strangeland & Bernard Yeung, 1998. "Inherited Wealth, Corporate Control and Economic Growth," William Davidson Institute Working Papers Series 209, William Davidson Institute at the University of Michigan.
    14. Baltagi, Badi H. & Li, Qi, 1992. "A Note on the Estimation of Simultaneous Equations with Error Components," Econometric Theory, Cambridge University Press, vol. 8(1), pages 113-119, March.
    15. Lewellen, Wilbur G, 1971. "A Pure Financial Rationale for the Conglomerate Merger," Journal of Finance, American Finance Association, vol. 26(2), pages 521-537, May.
    16. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    17. Randall K. Morck, 2000. "Concentrated Corporate Ownership," NBER Books, National Bureau of Economic Research, Inc, number morc00-1, July.
    18. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    19. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    20. Randall Morck & David Stangeland & Bernard Yeung, 2000. "Inherited Wealth, Corporate Control, and Economic Growth The Canadian Disease?," NBER Chapters, in: Concentrated Corporate Ownership, pages 319-372, National Bureau of Economic Research, Inc.
    21. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 1995. "Stock market development and firm financing choices," Policy Research Working Paper Series 1461, The World Bank.
    22. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    23. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-1395, November.
    24. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    25. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    26. 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.
    27. repec:cup:etheor:v:8:y:1992:i:1:p:113-19 is not listed on IDEAS
    28. Mehran, Hamid, 1995. "Executive compensation structure, ownership, and firm performance," Journal of Financial Economics, Elsevier, vol. 38(2), pages 163-184, June.
    29. Robert L. Lippert & William T. Moore, 1995. "Monitoring Versus Bonding: Shareholder Rights and Management Compensation," Financial Management, Financial Management Association, vol. 24(3), Fall.
    30. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    31. Demsetz, Harold, 1983. "The Structure of Ownership and the Theory of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 375-390, June.
    32. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    33. Harris, Milton & Raviv, Artur, 1988. "Corporate governance : Voting rights and majority rules," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 203-235, January.
    34. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-1177, December.
    35. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    36. Morck, Randall K. (ed.), 2000. "Concentrated Corporate Ownership," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226536781, November.
    37. Timothy J. Brailsford & Barry R. Oliver & Sandra L. H. Pua, 2002. "On the relation between ownership structure and capital structure," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 42(1), pages 1-26, March.
    38. McConnell, John J. & Servaes, Henri, 1995. "Equity ownership and the two faces of debt," Journal of Financial Economics, Elsevier, vol. 39(1), pages 131-157, September.
    39. Bajaj, Mukesh & Chan, Yuk-Shee & Dasgupta, Sudipto, 1998. "The Relationship between Ownership, Financing Decisions and Firm Performance: A Signaling Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 723-744, August.
    40. Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nigel Driffield & Vidya Mahambare & Sarmistha Pal, 2005. "How Ownership Structure Affects Capital Structure and Firm Performance? Recent Evidence from East Asia," Finance 0505010, University Library of Munich, Germany.
    2. Goergen, Marc & Manjon, Miguel C. & Renneboog, Luc, 2008. "Recent developments in German corporate governance," International Review of Law and Economics, Elsevier, vol. 28(3), pages 175-193, September.
    3. Attiya Y. Javid & Robina Iqbal, 2010. "Corporate Governance in Pakistan : Corporate Valuation, Ownership and Financing," Governance Working Papers 22830, East Asian Bureau of Economic Research.
    4. San Martin-Reyna, J.M. & Duran-Encalada, Jorge A., 2012. "The relationship among family business, corporate governance and firm performance: Evidence from the Mexican stock exchange," Journal of Family Business Strategy, Elsevier, vol. 3(2), pages 106-117.
    5. Hamadi, Malika & Heinen, Andréas, 2015. "Firm performance when ownership is very concentrated: Evidence from a semiparametric panel," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 172-194.
    6. Connelly, J. Thomas & Limpaphayom, Piman & Nagarajan, Nandu J., 2012. "Form versus substance: The effect of ownership structure and corporate governance on firm value in Thailand," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1722-1743.
    7. Yves Bozec & Claude Laurin, 2004. "Concentration des droits de propriété, séparation entre participation au capital et contrôle des votes et performance opérationnelle des sociétés:une étude canadienne," Revue Finance Contrôle Stratégie, revues.org, vol. 7(2), pages 123-164, June.
    8. Narjess Boubraki & Yves Bozec & Claude Laurin & Stéphane Rousseau, 2011. "Incorporation Law, Ownership Structure, and Firm Value: Evidence from Canada," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 8(2), pages 358-383, June.
    9. Morck, Randall & Deniz Yavuz, M. & Yeung, Bernard, 2011. "Banking system control, capital allocation, and economy performance," Journal of Financial Economics, Elsevier, vol. 100(2), pages 264-283, May.
    10. Rossi, Fabrizio & Barth, James R. & Cebula, Richard J., 2018. "Do shareholder coalitions affect agency costs? Evidence from Italian-listed companies," Research in International Business and Finance, Elsevier, vol. 46(C), pages 181-200.
    11. Margaritis, Dimitris & Psillaki, Maria, 2010. "Capital structure, equity ownership and firm performance," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 621-632, March.
    12. González, Maximiliano & Guzmán, Alexander & Pombo, Carlos & Trujillo, María-Andrea, 2012. "Family firms and financial performance: The cost of growing," Emerging Markets Review, Elsevier, vol. 13(4), pages 626-649.
    13. Zeineb Barka & Taher Hamza, 2020. "The effect of large controlling shareholders on equity prices in France: monitoring or entrenchment?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 24(3), pages 769-798, September.
    14. Randall Morck & Michael Percy & Gloria Tian & Bernard Yeung, 2005. "The Rise and Fall of the Widely Held Firm: A History of Corporate Ownership in Canada," NBER Chapters, in: A History of Corporate Governance around the World: Family Business Groups to Professional Managers, pages 65-148, National Bureau of Economic Research, Inc.
    15. Sviatoslav Moskalev & Seung Park, 2010. "South Korean Chaebols and Value-Based Management," Journal of Business Ethics, Springer, vol. 92(1), pages 49-62, March.
    16. Francesco Perrini & Ginevra Rossi & Barbara Rovetta, 2008. "Does Ownership Structure Affect Performance? Evidence from the Italian Market," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(4), pages 312-325, July.
    17. Nhung Hong 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.
    18. Pindado, Julio & Requejo, Ignacio & de la Torre, Chabela, 2014. "Family control, expropriation, and investor protection: A panel data analysis of Western European corporations," Journal of Empirical Finance, Elsevier, vol. 27(C), pages 58-74.
    19. Renée Adams & Daniel Ferreira, 2008. "One Share-One Vote: The Empirical Evidence," Review of Finance, European Finance Association, vol. 12(1), pages 51-91.
    20. Himmelberg, Charles P. & Hubbard, R. Glenn & Love, Inessa, 2002. "Investor protection, ownership, and the cost of capital," Policy Research Working Paper Series 2834, The World Bank.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:edb:cedidp:07-04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sarmistha Pal (email available below). General contact details of provider: https://edirc.repec.org/data/cedibuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.