Ownership Structure, Corporate Governance and Capital Structure of Non-Financial Firms of Pakistan
Keywords:
Ownership Structure, Corporate Governance, Capital Structure, Agency Theory, FGLS
Abstract
This study is undertaken with the purpose of investigating the impact of ownership structure and corporate governance on the capital structure of Pakistani listed firms from 2011-2014, feasible general least square is used to investigate the impact of ownership structure and corporate governance on capital structure of KSE 100 index firms. Explanatory variables include ownership concentration, managerial ownership, foreign ownership, institutional ownership, board size, board independence and CEO duality along with the three control variables namely firm size, firm profitability and liquidity. There is insignificant positive relationship between ownership concentration and capital structure, managerial ownership has a significant negative impact on debt ratio. Foreign ownership has also a significant negative impact on firm capital structure and institutional ownership has significant positive impact on capital structure. Board size is positively related to capital structure, board independence also positively related to firm’s debt ratio but CEO duality negatively related to the dependent variable, all these variables have significant impact on capital structure of Pakistani firms.
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References
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Svejnar, J., & Kocenda, E. (2002). The effects of ownership forms and concentration on firm performance after large-scale privatization. Titman, S., &Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1 19. Ukaegbu, B. (2014). The significance of working capital management in determining firm profitability: Evidence from developing economies in Africa. Research in International Business and Finance, 31, 1-16. Wen Y, Rwegasira, K, & Bilderbeek, J (2002) ‘Corporate governance and capital structure decisions of the Chinese listed firms’, Corporate Governance: An International Review, 10(2), 75-83. Yan Lam, T., & Kam Lee, S. (2008). CEO duality and firm performance: evidence from Hong Kong. Corporate Governance: The international journal of business in society, 8(3), 299-316. Zeitun, R., Tian, G. (2007). Capital structure and corporate performance: evidence from Jordan, Australasian Accounting Business and Finance Journal, 1: 40-53. Zheka, V. (2005), “Corporate governance, ownership structure and corporate efficiency: the case of Ukraineâ€, Managerial and Decision Economics, 26(7), 451-60.
Bokpin, G. A., & Arko, A. C. (2009). Ownership structure, corporate governance and capital structure decisions of firms: Empirical evidence from Ghana. Studies in Economics and Finance, 26(4), 246-256. Brailsford, T. J., Oliver, B. R., & Pua, S. L. (2002). On the relation between ownership structure and capital structure. Accounting & Finance, 42(1), 1-26. Cadbury, A 1992, ‘The financial aspects of corporate governance’, the final report of the Committee on the Financial Aspects of Corporate Governance, viewed on 8 June 2013 www.ecgi.org Cheema, A., F. Bari and O. Saddique, (2003). Corporate governance in Pakistan: Ownership, control and the law. Lahore: Lahore University of Management Sciences. Cheng, S. (2008). Board size and the variability of corporate performance. Journal of financial economics, 87(1), 157-176. Cheng, S., Nagar, V. and Rajan, M. (2005), “Identifying control motives in managerial ownership: evidence from antitakeover legislationâ€, Review of Financial Studies, 18, 636-72. Coles, J. L., Daniel, N. D., & Naveen, L. (2008). Boards: Does one size fit all? Journal of financial economics, 87(2), 329-356. Driffield, N., Vidya, M. and Sarmistha, P. (2005), “How ownership structure affects capital structure and firm performance? Recent evidence from East Asiaâ€, Finance 0505010, Economics Working Paper Archive EconWPA. Erickson, J., Park, Y. W., Reising, J., & Shin, H. H. (2005). Board composition and firm value under concentrated ownership: The Canadian evidence. Pacific-Basin Finance Journal, 13(4), 387-410. Faleye, O. (2007). Classified boards, firm value, and managerial entrenchment. Journal of Financial Economics, 83(2), 501-529. Fosberg, R.H (2004, ‘Agency problems and debt financing: Leadership structure effects’, Corporate Governance, 4(1), 31-38. Friend, I., & Lang, L. H. P. (1988). An empirical test of the impact of managerial self-interest on corporate capital structure. The Journal of Finance, 43(2), 271 -281. Gedajlovic, Eric, Yoshikawa, Toru and Hashimoto, Motomi (2005) Ownership structure, investment behavior and firm performance in Japanese manufacturing industries. Research Collection Lee Kong Chian School of Business, Paper 2288. Grier, P., & Zychowicz, E. J. (1994). Institutional investors, corporate discipline, and the role of debt. Journal of Economics and Business, 46(1), 1-11. Gurunlu, M., & Gursoy, G. (2010). The influence of foreign ownership on capital structure of non-financial firms: evidence from Istanbul Stock Exchange. IUP Journal of Corporate Governance, 9(4), 21. Hasan, A., & Butt, S. A. (2009). Impact of ownership structure and corporate governance on capital structure of Pakistani listed companies. International Journal of Business and Management, 4(2), 50-57 http://www.adb.org/countries/pakistan/economy Huang, G. and Song, F.M., (2006). The determinants of capital structure: Evidence from China. China Economic Review, 17, 14-36. Jabbarzadeh Kangarlouei, S., Kavasi, B., & Motavassel, M. (2013). The effects of outside board on firm value in Tehran Stock Exchange from the perspective of information transaction costs. International Journal of Industrial Mathematics, 5(4), 375-386. Jensen, M (1986), ‘Agency cost of free cash flow, corporate finance and takeovers’, American Economic Review Papers and Proceedings, 76, 323-329. Jensen, M. and Meckling, W.H. (1976) 'Theory of the firm: managerial behavior, agency costs and ownership structure', Journal of Financial Economics, 3: 305-360. Jensen, M. C. (1986). Agency Costs of Free Cash Flow, Corporate Finance and Takeovers. American Economic Review, 76, 323-329 Johnson, S., La Porta, R., Lopez-De-Silanes, F., &Shleifer, A. (2000). Tunneling. The American Economic Review, 90(2), 22-27. Koch, P.D. and Shenoy, C. (1999), “The information content of dividend and capital structure policiesâ€, Financial Management, 28(4), 16-35. Kumar, N., & Singh, J. P. (2013). Effect of board size and promoter ownership on firm value: some empirical findings from India. Corporate Governance: The international journal of business in society, 13(1), 8898.
Lee, Kwang and Kwok, Chuck (1988) Multinational corporations vs. domestic corporations: international environmental factors and determinants of capital structure. Journal of International Business Studies, 19 (2): 195-217. Li, K., Yue, H., & Zhao, L. (2009). Ownership, institution, and capital structure: evidence from China. Journal of Comparative Economics, 37, 471 -490. Lingling Z. (2013) the impact of ownership structure on capital structure; Evidence from listed firms in China. School of management and governance financial management, University of Twente, Netherlands. Maddala, C.S. and Mount, T.D. (1973) “A Comparative Study of Alternative Estimators for Variance Components Models Used in Econometric Applicationsâ€. Journal of the American Statistical Association, 68: 324–328. Mak, Y. T., & Kusnadi, Y. (2005). Size really matters: Further evidence on the negative relationship between board size and firm value. Pacific-Basin Finance Journal, 13(3), 301-318. Masood, A., & Shah, A. (2014). Corporate governance and cash holdings in listed non-financial firms of Pakistan. Mieno, Fumiharu (2009) Foreign ownership, listed status, and the financial system in East Asia: Evidence from Thailand and Malaysia. Asia-Pacific Economic Cooperation Discussion Paper Seriesno.64, Columbia University, New York, United States. Mishra, C.S. and McConaughy, D.L. (1999), “Founding family control and capital structure: the risk of loss of control and the aversion to debtâ€, Entrepreneurial Theory and Practice, 23(4), 53-64. Modigliani, F. and Miller, M. (1958), ‘‘the Cost of Capital, Corporation Finance and the Theory of Finance’ ’American Economic Review, 48(1), 261-97. Mohid, M. A., Perry, L. G., & Rimbey, J. N. (1998). The impact of ownership structure on corporate debt policy: a time-series cross-sectional analysis. The Financial Review, 33, 85-98. Myers, S. C. (2001). Capital Structure, The Journal of Economic Perspectives, 15(2), 81-102 Myers, S. C., & Rajan, R. G. (1998). The paradox of liquidity. The Quarterly Journal of Economics, 113(3), 733771. Myers, S., and N. Majluf. (1984). Corporate Financing and Investment Decisions When Firms Have Information Investors Do Not Have. Journal of Financial Economics, 13, 187-222. N. H. Wellalage and S. Locke, (2014), “Impact of ownership structure on capital structure of New Zealand unlisted firms. Journal of Small Business and Enterprise Development, 22(1), 127-142. O’Connell, V., & Cramer, N. (2010). The relationship between firm performance and board characteristics in Ireland. European Management Journal, 28(5), 387–399. Pakistan institute of corporate governance 2011, ‘Survey on Board Practices in Pakistan’, viewed on June 2013, www.picg.org.pk Pfeffer, J. and Salanick, G.R. (1978), The External Control of Organizations: A Resource Dependence Perspective, Harper & Row, New York, NY. Pindado, J., & La Torre, D. C. (2011). Capital structure: new evidence from the ownership structure. International Review of Finance, 11(2), 213-226. Rajangam, N., Sundarasen, S. and Rajajopalan, U. (2014) Impact of Governance on Profitability and Gearing of Companies, Asian Social Science, 10(10), 13-23. Ryen, G.T., Vasconcellos, G.M. and Kish, R.J. (1997), “Capital structure decisions: what have we learned?â€, Business Horizon, 40(5) 41-50. Saeedi, A & Mahmoodi I, (2011), Capital Structure and Firm Performance: Evidence from Iranian Companies, International Research Journal of Finance and Economics, 70: 21-28. Salim, M., & Yadav, R. (2012). Capital Structure and Firm Performance: Evidence from Malaysian Listed Companies. Procedia - Social and Behavioral Sciences, 65 (ICIBSoS), 156–166. doi: 10.1016/j.sbspro.2012.11.105 Securities and Exchange Commission of Pakistan (2012), ‘The codes of corporate governance report’, viewed on 19 June 2013, www.secp.gov.pk Sheikh, N. A. and Wang, Z. (2012), “Effects of corporate governance on capital structure: empirical evidence from Pakistanâ€, Corporate Governance: The international journal of business in society, 12(5), 629 – 641. Shleifer, A, & Vishny, R, W (1997). ‘A survey of corporate governance’, The Journal of Finance, 52(2), 737-783. Short, H., Keasey, K., & Duxbury, D. (2002). Capital structure, management ownership and large external shareholders: a UK analysis. International Journal of the Economics of Business, 9(3), 375-399.
Svejnar, J., & Kocenda, E. (2002). The effects of ownership forms and concentration on firm performance after large-scale privatization. Titman, S., &Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1 19. Ukaegbu, B. (2014). The significance of working capital management in determining firm profitability: Evidence from developing economies in Africa. Research in International Business and Finance, 31, 1-16. Wen Y, Rwegasira, K, & Bilderbeek, J (2002) ‘Corporate governance and capital structure decisions of the Chinese listed firms’, Corporate Governance: An International Review, 10(2), 75-83. Yan Lam, T., & Kam Lee, S. (2008). CEO duality and firm performance: evidence from Hong Kong. Corporate Governance: The international journal of business in society, 8(3), 299-316. Zeitun, R., Tian, G. (2007). Capital structure and corporate performance: evidence from Jordan, Australasian Accounting Business and Finance Journal, 1: 40-53. Zheka, V. (2005), “Corporate governance, ownership structure and corporate efficiency: the case of Ukraineâ€, Managerial and Decision Economics, 26(7), 451-60.
Published
2018-04-10
How to Cite
Ahmad, H., Akhter, N., Siddiq, T., & Iqbal, Z. (2018). Ownership Structure, Corporate Governance and Capital Structure of Non-Financial Firms of Pakistan. Information Management and Business Review, 10(1), 31-46. https://doi.org/10.22610/imbr.v10i1.2146
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Research Paper
Copyright (c) 2018 Hassan Ahmad, Nasreen Akhter, Tariq Siddiq, Zahid Iqbal
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