Article2009

Ownership structure, corporate governance and capital structure decisions of firms

129 citations0/0 files storedStudies in Economics and Finance

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Corporate Finance and Governance Financial Analysis and Corporate Governance Corporate Governance and Financial Management

Abstract

Purpose The purpose of this paper is to examine the effect of ownership structure and corporate governance on capital structure decisions of firms on the Ghana Stock Exchange (GSE). Design/methodology/approach To analyze the impact of ownership structure and corporate governance on firms' financing decisions, unbalanced panel data covering a period from 2002 to 2007 is employed using the seemingly unrelated regression approach to mitigate the effects of multicollinearity among the regressors. Findings The regression results reveal that managerial shareholding significantly positively influences the choice of long‐term debt over equity. Among the corporate governance variables, board size is found to be positively and statistically significantly related to capital structure choices. Firm level factors such as volatility in earnings, asset tangibility, dividend payout ratio and profitability are significant determinants of corporate capital structure decisions on the GSE. The findings are largely consistent with theories of capital structure decisions observed in the literature. Originality/value The main value of this paper is to provide a comprehensive understanding of the impact of forms of ownership and other governance practices on capital structure decisions of firms from an emerging market perspective.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1958The Cost of Capital, Corporation Finance and the Theory of Investment 1996Agency costs of free cash flow, corporate finance, and takeovers 2008The cost of capital, corporation finance and the theory of investment 1988Management ownership and market valuation 1988The Determinants of Capital Structure Choice 2001The theory and practice of corporate finance: evidence from the field

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