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Do Network Linkages affect Financial Leverage ? A Group Governance Perspective

Author

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  • Hsien-Chang Kuo

    (Department of Accounting, and Department of Finance, Shih Chien University.70, Dazhi Rd., Taipei 10462, Taiwan, R.O.C.)

  • Lie-Huey Wang

    (Department of Finance, Ming Chuan University. 250, Zhong Shan N. Rd., Sec. 5, Taipei 11103, Taiwan, R.O.C.)

Abstract

Using a unique panel of 315 Taiwanese listed business groups over the period of 2006- 2008, and adopting the related party purchases and sales transactions as the proxy for network linkages, this study tests whether do the network linkages affect financial leverage. The results find that the shareholdings of family members and the divergence between the board seats control and voting rights are negatively correlated with the related party purchases and sales network linkages. For information technology (IT) family firms, the higher the related party sales, the higher is the debt ratio; the higher the related party purchases, the higher is the long-term debt ratio; and the greater the number of related party suppliers, the higher is the short-term debt ratio. The opposite is true for non-information technology (NIT) family firms.

Suggested Citation

  • Hsien-Chang Kuo & Lie-Huey Wang, 2015. "Do Network Linkages affect Financial Leverage ? A Group Governance Perspective," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 50-69, December.
    • Handle: RePEc:rjr:romjef:v::y:2015:i:4:p:50-69
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    More about this item

    Keywords

    capital structure; network linkages; related party transaction; business groups; family governance;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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

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