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Foreign ownership and capital structure dynamics

Author

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  • Do, Trung K.
  • Lai, Tuan N.
  • Tran, Thuy T.C.

Abstract

This study explores the relationship between foreign investors and the dynamics of capital structure. Using a sample of listed firms in Taiwan during the period from 1997 to 2016, our results reveal that firms with higher foreign ownership are less likely to issue debt, indicating that foreign investors serve as a direct substitute for debt by enhancing corporate governance. Moreover, foreign investors help reduce leverage adjustment costs, which in turn increases the speed of adjustment toward target leverage. Overall, this study highlights the important role played by foreign investors in shaping firms’ optimal capital structure decisions and shareholder wealth maximization, and thus provides evidence in supporting a positive view of foreign ownership in emerging markets.

Suggested Citation

  • Do, Trung K. & Lai, Tuan N. & Tran, Thuy T.C., 2020. "Foreign ownership and capital structure dynamics," Finance Research Letters, Elsevier, vol. 36(C).
    • Handle: RePEc:eee:finlet:v:36:y:2020:i:c:s1544612319307317
    DOI: 10.1016/j.frl.2019.101337
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    5. Mian, Rehman U. & Mian, Affan & Safdar, Nabeel & Ilyas, Muhammad, 2022. "Cross-border spillover of institutional activism: The monitoring role of locally-aggressive foreign institutional investors," Finance Research Letters, Elsevier, vol. 46(PB).
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    7. Zeitun, Rami & Goaied, Mohamed & Refai, Hisham Al, 2022. "Does minority management affect a firm's capital structure? Evidence from Japan," Finance Research Letters, Elsevier, vol. 50(C).
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    More about this item

    Keywords

    Foreign Ownership; Monitoring; Capital Structure Dynamics; Speed of Adjustments (SOA);
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • 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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