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How Ownership Structure Affects Capital Structure and Firm Performance? Recent Evidence from East Asia

Nigel Driffield, Vidya Mahambare () and Sarmistha Pal

Finance from University Library of Munich, Germany

Abstract: Despite the seminal work of Claessens et al. (2002), role of ownership structure on capital structure and firm performance in East Asian corporattions remains much unexplored. Within the framework of Bajaj et al. (1998), the present paper empirically examines the effects of a controlling manager and degree of monitoring (a measure of moral hazard) on capital structure and firm performance among a sample of Korean and Indonesian firms. In doing so, we not only allow for simultaneity between capital structure and firm performance (a la Berger and di Patti, 2003), but also the non-linearity in these relationships. Our empirical results in essence depend on whether a firm is run by a family and also whether there is a manager who is also a controlling owner. There is evidence that family ownership could mitigate the problem of moral hazard though it could exacerbate the problem of over-lending in our samples. Also the effects of ownership structure on firm performance cannot be delineated from its effects on leverage. As such, the results presented here confirm and extend the essential findings of Claessens et al. (2002) and Bajaj et al. (1998).

Keywords: Asian Crisis; Corporate Governance; Capital structure; Firm performance; Expropriation of minority shareholders; 3SLS estimates; Simultaneity bias; Non-linearity. (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2005-09-27
New Economics Papers: this item is included in nep-cfn, nep-eff, nep-fin, nep-fmk and nep-sea
Note: Type of Document - pdf; pages: 44. Revised version
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Working Paper: How Ownership Structure Affects Capital Structure and Firm Performance? Recent Evidence from East Asia (2005) Downloads
Working Paper: How Ownership Structure Affects Capital Structure and Firm Performance? Recent Evidence from East Asia (2005) Downloads
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