Ownership, capital structure and financing decision: Evidence from the UK

Ji Sun, Li Ding, Jie Michael Guo and Yichen Li

The British Accounting Review, 2016, vol. 48, issue 4, 448-463

Abstract: This paper examines whether and to what degree agency conflicts in ownership structure affect firm leverage ratios and external financing decisions, using a universal sample of UK firms from 1998 to 2012. We use two distinctive measures to capture ownership structure, namely, managerial share ownership (MSO) and institutional ownership. Our empirical results show a non-monotonic relation between MSO and the debt ratio, supporting two competing theories: interest alignment theory and the management entrenchment hypothesis. Nevertheless, institutional ownership is found to be positively related to firm leverage levels. Our results further suggest that firms with concentrated MSO decrease their leverage by increasing the probability of issuing equity over bonds, an effect strengthened during hot market periods.

Keywords: Ownership; Capital structure; Market valuation; Security issuance; Agency theory (search for similar items in EconPapers)
JEL-codes: G14 G32 G33 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:48:y:2016:i:4:p:448-463

DOI: 10.1016/j.bar.2015.04.001

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