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Nonlinear association between ownership concentration and leverage: The role of family control

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  • Lo, Huai-Chun
  • Ting, Irene Wei Kiong
  • Kweh, Qian Long
  • Yang, Ming Jing

Abstract

The 2008–2009 global financial crisis and the European debt crisis have raised further questions on leverage decision making. In this regard, this study examines the association between concentration of controlling rights and leverage in the presence of families. This study also assesses the role played by families in moderating the nonlinear reversed U-shaped association between concentration of controlling rights and debt ratio. Publicly listed companies in Taiwan, which is a nation characterized by weak protection for minority shareholders, are studied for the period of 1999 to 2014. The effect of the nonlinear inverted U shape is confirmed, and the weakened effect of the existence of family control is presented. The results remain unchanged in several alternative tests, including addressing the endogeneity issue of ownership–decision studies. Overall, this study highlights the ownership–debt relationship in a nation with weak protection of minority shareholders.

Suggested Citation

  • Lo, Huai-Chun & Ting, Irene Wei Kiong & Kweh, Qian Long & Yang, Ming Jing, 2016. "Nonlinear association between ownership concentration and leverage: The role of family control," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 113-123.
    • Handle: RePEc:eee:finana:v:46:y:2016:i:c:p:113-123
    DOI: 10.1016/j.irfa.2016.04.013
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    Cited by:

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    2. Qian Long Kweh & Irene Wei Kiong Ting & Hanh Thi My Le & Mohammad Nourani, 2021. "Nonlinear impacts of board independence on debt financing: Contingent on the shareholdings of the largest shareholder," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2289-2306, April.
    3. Ramzi Benkraiem & Amal Hamrouni & Anthony Miloudi & Ali Uyar, 2018. "Access to Finance for French Firms: Do boardroom attributes matter?," Economics Bulletin, AccessEcon, vol. 38(3), pages 1267-1278.
    4. Wu, Ming & Ohk, Kiyool & Ko, Kwangsoo, 2019. "Are cash-flow betas really bad? Evidence from the Greater Chinese stock markets," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 58-68.
    5. Amin, Qazi Awais & Liu, Jia, 2020. "Shareholders' control rights, family ownership and the firm's leverage decisions," International Review of Financial Analysis, Elsevier, vol. 72(C).
    6. Mertzanis, Charilaos, 2019. "Family ties, institutions and financing constraints in developing countries," Journal of Banking & Finance, Elsevier, vol. 108(C).
    7. Rehman, Atiqa & Gonenc, Halit & Hermes, Niels, 2023. "Corporate social performance of family firms and shareholder protection: An international analysis," Journal of Family Business Strategy, Elsevier, vol. 14(2).
    8. Jiamin Nie & Shanli Ye, 2022. "Ownership Structure, Corporate Governance, and Performance of Listed Companies—An Empirical Application of a Semi-Parametric Quantile Regression Model," Sustainability, MDPI, vol. 14(24), pages 1-18, December.

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    More about this item

    Keywords

    Ownership concentration; Controlling rights; Family control; Leverage; Debt ratio; Nonlinear relationship;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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