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Capital structure and managerial ownership: Evidence from Pakistan

Author

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  • Shoaib, Khan
  • Yasushi, Suzuki

Abstract

This paper aims to investigate how managerial equity ownership affects the capital structure choice (debt-equity ratio) of non-financial firms listed on the Karachi Stock Exchange in Pakistan between 2008 and 2012. Earlier studies on Pakistan have explored the impact of ownership structure on firm performance. This study extends the literature by exploring the relationship of ownership structure, especially managerial ownership, on capital structure. Our results show an inverted U-shaped relationship between managerial equity ownership and leveraging. At a low level of managerial ownership, it is positively related to debt-equity ratio, assuming that managers use more debt, possibly seeking for higher returns on equity or higher stock price by leveraging. An inverted U-shaped relationship suggests that leveraging would be diminished after the point where managers become major residual claimants by owning a certain amount of equity ownership. Managerial opportunism may explain this tendency, though the causal relationship requires further discussion.

Suggested Citation

  • Shoaib, Khan & Yasushi, Suzuki, 2015. "Capital structure and managerial ownership: Evidence from Pakistan," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 11(2), pages 1-12.
    • Handle: RePEc:ags:pdcbeh:246162
    DOI: 10.22004/ag.econ.246162
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    File URL: https://ageconsearch.umn.edu/record/246162/files/201606301456_10_BEH_Vol11_Issue2_2015_Khan_Shoaib_Capital_structure__and_managerial_ownership_Evidence_Pakistan_pp.131-142.pdf
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    Cited by:

    1. Muhammad Khafid & Rida Prihatni & Ira Eva Safitri, 2020. "The Effects of Managerial Ownership, Institutional Ownership, and Profitability on Capital Structure: Firm Size as the Moderating Variable," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(4), pages 493-501, July.

    More about this item

    Keywords

    Industrial Organization;

    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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