Corporate governance and debt structure
the case of Portuguese SMEs
Introduction: The study of corporate governance in financial decisions has gained relevance, particularly in debt structure, while remaining open how its characteristics influence such decisions. In this study, three forms of debt were considered (total, short term and medium/long term).
Objectives: The study aims to analyze whether government influences corporate financing decisions, bearing in mind the nature of ownership (family vs. non-familiar).
Methods: Multiple linear regression models to explain debt variables were estimated using least squares method with robust standard errors.
Results: Family businesses have higher total indebtedness with managerial ownership playing a relevant role. Regardless of the property nature, higher return is associated with lower debt, while size has a positive impact on total debt. On the other hand, the nature of property is a differentiating factor in the way in which concentration of ownership is related to debt: In family-owned companies the concentration of ownership establishes a nonlinear (U-shaped) relationship with total indebtedness, but in non-family-owned companies the relationship between the two was not significant.
Conclusions: Managerial ownership and concentration of ownership determine the debt structure differently in family and non-family businesses.
Allaya, M., Derouiche, I., & Muessig, A. (2018). Voluntary disclosure, ownership structure, and corporate debt maturity: A study of French listed firms. International Review of Financial Analysis. (Article in press)
Anderson, R. C., Mansi, S.A., & Reed, D. M. (2003). Founding family ownership and the agency cost of debt. Journal of Financial Economics, 68(2), 263-285.
Baysinger, B., & Hoskisson, R.E. (1990). The composition of boards of directors and strategic control: effects on corporate strategy. Academy of Management Review, 15(1), 72-87.
Bolton, P., & Scharfstein, D. (1996). Optimal debt structure and the number of creditors. Journal of Political Economy, 104(1), 1-25.
Bopaiah, C. (1998). Availability of credit to family business. Small Business Economics, 11(1), 75-86.
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.
Brav, O. (2009). Access to capital, capital structure, and the funding of the firm. Journal of Finance, 64, 263–308.
Bunkanwanicha, P., Gupta, J., & Rokhim, R. (2008). Debt and entrenchment: Evidence from Thailand and Indonesia. European Journal of Operational Research, 185(3), 1578-1595.
Céspedes, J., González, M., & Molina, C. (2010). Ownership and capital structure in Latin America. Journal of Business Research, 63, 248–254.
Chung, C. Y. (2012) Substitutability Between Institutional Monitoring and Debt Monitoring. International Research Journal of Finance and Economics, 101.
Chung, M., & Chan, T. (2012). Ownership structure, family leadership, and performance of affiliate firms in large family business groups. Asia Pacific Journal of Management, 29(2), 303-329.
Clarkson, M. (1995). A stakeholder framework for analyzing and evaluating corporate social performance. Academy of Management Review, 2081, 92-117.
Degryse, H., de Goeij, P., & Kappert, P. (2012). The impact of firm and industry characteristics on small firms’ capital structure. Small Business Economics, 38(4), 431-44.
Diamond, D. (1984). Financial intermediation and delegated monitoring. Review of Economic Studies, 51(3), 393-414.
Diego, P. (2017). Sovereign debt maturity structure under asymmetric information. Journal of International Economics, 108(1), 243-259.
Dittmar, A., & Mahrt-Smith, J. (2007). Corporate governance and the value of cash holdings. Journal of Financial Economics, 83(3), 599-634.
Driffield, N., Mahambre, V., & Pal, S. (2007). How does ownership affect capital structure and firm value: Recent evidence from East Asia. CEDI Discussion Paper Series Working Paper No. 07-04. West London: Brunel University.
Du, J., & Dai, Yi, (2005). Ultimate Corporate Ownership Structures and Capital Structures: Evidence from East Asian Economies. Corporate Governance: An International Review, 13 (1), 60-71.
Ellul, A. (2009). Control motivations and capital structure decisions. Working Paper, Indiana University.
Florackis, C., Kostakis, A., & Ozkan, A. (2009). Managerial ownership and performance. Journal of Business Research, 62(12), 1350-1357.
Ganguli, S. K. (2013). Capital Structure-Does Ownership Structure Matter? Theory and Indian Evidence. Studies in Economics and Finance, 30(1), 56-72.
Gillan, S. & Starks, L. (2000). Corporate governance proposals and shareholder activism: the role of institutional investors. Journal of Financial Economics, 57(2), 275-305.
Gorton, G., & Schmid, A. (2000). Universal Banking and the Performance of German Firms. Journal of Financial Economics, 58(1-2), 29– 80.
Gregoric, A., & Vespro C. (2003). Block Trades and the Benefits of Control in Slovenia. Working Paper No. 29/2003, http://ssrn.com/abstract=444500
Grossman, S., & Hart, O. (1982). Corporate Financial Structure and Managerial Incentives. The Economics of Information and Uncertainty, University of Chicago Press, pp. 107–37.
Hall, G.C., Hutchinson, P.J., & Michaelas, N. (2004). Determinants of the capital structure of European SMEs. Journal of Business & Accounting, 31 (5–6), 711–728.
Harford, J., Li, K. & Zhao, X. (2008). Corporate Boards and the Leverage and Debt Maturity Choices. International Journal of Corporate Governance, 1(1), 3–27.
Hart, O. (1995). Corporate Governance: Some Theory and Implications. The Economic Journal, 105(430), 678-689.
Hart, O., & Moore, J. (1995). “Debt and Seniority: An Analysis of the Role of Hard Claims in Constraining Management.” American Economic Review, 85, no. 3: pp. 567–585.
Hayat, M., Yu, Y., Man, W., & Jebran, K. (2018). Impact of Managerial and Institutional Ownership on Capital Structure: A Comparison Between China & USA. European Journal of Business and Management, 10(24), 69-80.
Hayat, M., Wang, M., & Ma, J. (2016). The Impact of Ownership Structure on Corporate Debt Financing: Evidence from the Manufacturing Sector of Pakistan. The International Journal of Management Theory and Practices, 17, 92-109. Heyman, F., Svaleryd, H., & Vlachos, J. (2013). Competition, takeovers, and gender discrimination. ILR Review, 66(2), 409-432.
Hillbrecht, R. (1999). Economia monetária. São Paulo, Atlas.
Hoshi, T., Kashyap, A., & Scharfstein, D. (1993). The choice between public and private debt: an analysis of post-deregulation corporate finance in Japan. NBER Working paper, 4421. Acedido em http://ssrn.com/abstract=227327
Jensen, M., & W. Meckling (1976). Theory of the Firm: Managerial Behavior, Agency Cost and Ownership Structure. Journal of Financial Economics, 3, 305–60.
Johnson, P. Boone, A. Breach, E., & Friedman (2000). Corporate governance in the Asian financial crisis. Journal of Financial Economics, 58(1-2), 141–186.
Keasey, K., Martinez, B., & Pindado, J. (2015). Young family firms: Financing decisions and the willingness to dilute control. Journal of Corporate Finance, 34, 47-63.
La Porta, R., López de Silanes, F., Shleifer, A., & Vishny, R. (2000). Agency problems and dividend policies around the world. Journal of Finance, 55(1), 1-33.
Liu, G., & Sun, J. (2010). Ultimate ownership structure and corporate disclosure quality: Evidence from China. Managerial Finance, 36(5), 452-467.
Liu, Q., Tian, G., & Wang, X. (2011). The effect of ownership structure on leverage decision: New evidence from Chinese listed firms. Journal of the Asia Pacific Economy, 16(2), 254-276.
Lundstrum, L. L. (2009). Entrenched management, capital structure changes and firm value. Journal of Economics and Finance, 33(2), 161-175.
Organization for Economic Cooperation and Development (2004). Os Princípios da OCDE sobre o Governo das Sociedades. Acedido em https://www.oecd.org/daf/ca/corporategovernanceprinciples/33931148.pdf
Paramanantham, N. S., Ting, I. W. K., & Kweh, Q. L. (2018). Ownership concentration and debt structure: Evidence from top 100 PLCs in Malaysia. Institutions and Economies, 10(3), 1-13.
Petersen, M. A., & Rajan, R. G. (1995). The effect of credit market competition on lending relationships. The Quarterly Journal of Economics, 110(2), 407-443.
Pindado, J., & La Torre, D. C. (2011). Capital structure: New evidence from the ownership structure. International Review of Finance, 11(2), 213-226.
Pinto, A., & Augusto, M., (2014). Are There Non-linear Relationships between Ownership Structure and Operational Performance?. Empirical Evidence from Portuguese SMEs Using Dynamic Panel Data. International Journal of Business Administration, 5(3), 1-19.
Prowse, S. (1995). Corporate governance in an international perspective. A survey of corporate control mechanisms among large firms in the US, UK, Japan and Germany. Financial Market, Institutions and Instruments, 4(1), 1-63.
Rajan, R. G., & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data”, Journal of Finance, 50(5), 1421–1460.
Ramakrishnam, R., & Thakor, A. (1984). Information reliability and theory of financial intermediation. Review of Economic Studies, 52, 415-432.
Salas, V. (2002). El gobierno de la empresa. Colección de Estudios Económicos, 29.
Schulze, W. S., Lubatkin, M. H., Dino, R. N., & Buchholtz, A. K. (2001). Agency relationships in family firms: Theory and evidence. Organization Science, 12(2), 99-116.
Schulze, W., Lubatkin, M., & Dino, R. (2002). Altruism, agency, and competitiveness of family firms. Managerial and Decision Economics, 23(4-5), 247-259.
Schulze, W., Lubatkin, M., Dino, R. & Buchholtz, A. (2001). Agency relationship in family firms: theory and evidence. Organization Science, 12(2), 99-116.
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.
Shyu, Y. W., & Lee, C. I. (2009). Excess Control Rights and Debt Maturity Structure in Family-Controlled Firms. Corporate Governance: An International Review, 17(5), 611-628.
Sogorb-Mira, F. (2005). How SME uniqueness affects capital structure: Evidence from a 1994–1998 Spanish data panel. Small Business Economics, 25(5), 447-457.
Stiglitz, J., & WEISS, A. (1981). Credit Rationing in Markets with imperfect information. The American Economic Review, 71(3), 393-410.
Sun, J., Ding, L., Guo, J. M., & Li, Y. (2016). Ownership, capital structure and financing decision: evidence from the UK. The British Accounting Review, 48(4), 448-463.
Stulz, R. (1988). Managerial control of voting rights: Financing policies and the market for corporate control. Journal of Financial Economics, 20(1–2), 25–54.
Suto, M. (2003). “Capital structure and investment behaviour of Malaysian firms in the 1990s: A study of corporate governance before the crisis. Corporate Governance: An International Review, 11(1), 25-39.
Tirole, J. (2006). The Theory of Corporate Finance. Princeton University Press, 15-20.
Watson, R., & Wilson, N., (2002). Small and medium size enterprise financing: A note on some of the empirical implications of a pecking order. Journal of Business Finance & Accounting, 29 (3‐4), 557-578.
Zhang, L. L. (2013). The impact of ownership structure on capital structure: Evidence from listed companies in China. The Journal of Finance and Economics, 12(1), 1-30.
Zingales, L. (1998). Corporate Governance. NBER, University of Chicago, Working Paper, 6309.
Copyright (c) 2020 Millenium - Journal of Education, Technologies, and Health
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors who submit proposals for this journal agree to the following terms:
a) Articles are published under the License Creative Commons, in full open-access, without any cost or fees of any kind to the author or the reader;
b) The authors retain copyright and grant the journal right of first publication, allowing the free sharing of work, provided it is correctly attributed the authorship and initial publication in this journal;
c) The authors are permitted to take on additional contracts separately for non-exclusive distribution of the version of the work published in this journal (eg, post it to an institutional repository or as a book), with an acknowledgment of its initial publication in this journal;
d) Authors are permitted and encouraged to publish and distribute their work online (eg, in institutional repositories or on their website) as it can lead to productive exchanges, as well as increase the impact and citation of published work
Documents required for submission