Effect of ownership concentration on capital structure: evidence from the MENA region

2015 ◽  
Vol 8 (1) ◽  
pp. 99-113 ◽  
Author(s):  
Omar Farooq
Keyword(s):  
Capital Structure ◽  
United Arab Emirates ◽  
Negative Relationship ◽  
Ownership Concentration ◽  
Agency Conflicts ◽  
Information Asymmetries ◽  
Mena Region ◽  
Content Type ◽  
Growth Firms ◽  
The Relationship

Purpose – This paper aims to document how does ownership concentration, a proxy for agency conflicts, affect capital structure of firms in emerging markets. Agency relationship between insiders and outsiders has the potential to influence corporate decision-making which, in turn, impacts firm characteristics such as leverage. Design/methodology/approach – This paper uses pooled regression analysis to document the effect of ownership concentration on capital structure in the Middle East and North Africa (MENA) region (Morocco, Egypt, Saudi Arabia, United Arab Emirates, Jordan, Kuwait and Bahrain), during the period between 2005 and 2009. Findings – The authors show that ownership concentration negatively affects capital structure. The results also show that for a given level of ownership concentration, the proportion of debt in capital structure goes up as information asymmetries decrease. Finally, the results show that for a given ownership concentration, it is the growth firms with low information asymmetries that have a higher proportion of debt in capital structure. Research limitations/implications – The authors argue that information asymmetries associated with ownership concentration minimize the ability of firms to raise debt, thereby resulting in a negative relationship between ownership concentration and capital structure. Furthermore, reluctance on the part of controlling shareholders to accumulate excess leverage to minimize non-diversifiable risk also negatively influences capital structure. Originality/value – Most of the prior studies on the relationship between ownership concentration and capital structure have been conducted in relatively more developed markets. An important market that has failed to attract attention regarding this issue is the MENA. This paper is an attempt to fill this gap by documenting the relationship between the two in the MENA region.

scholarly journals Leverage and investment opportunities: the effect on high growth firms

2020 ◽  
Vol 31 (83) ◽  
pp. 302-317
Author(s):  
Rossimar Laura Oliveira ◽  
Eduardo Kazuo Kayo
Keyword(s):  
Capital Structure ◽  
Inverse Relationship ◽  
Negative Relationship ◽  
High Growth ◽  
Growth Opportunities ◽  
Dynamic Panel ◽  
Industry Growth ◽  
Investment Opportunities ◽  
Growth Firms ◽  
The Relationship

ABSTRACT The objective of this paper is to investigate if the high growth of a firm results in a reduction in its debt levels. This is expected to happen for firms that experience a positive idiosyncratic shock to their growth opportunities, which would affect their cash flow and profitability. Although the relationship between growth opportunities (e.g., Tobin’s Q) and capital structure has already been widely discussed from a conceptual viewpoint, there are still important empirical gaps, particularly due to the endogeneity of the first variable. This paper seeks to minimize these problems by operationalizing the concept of idiosyncratic technological shocks. This issue is relevant because the negative relationship between growth and leverage may indicate that for the most efficient companies there will be a reduction in bankruptcy cost and a reduction in agency costs for the least efficient companies. This paper contributes to the development of studies in the area by demonstrating the inverse relationship between growth and leverage, with the model and the variable that represents the positive shocks experienced by companies. The dynamic panel method enables an analysis of the variation in debt in relation to the variation in value using the first differences and controlling the lagged debt effect. To apply the model, we used data from Brazilian companies, covering 1995 to 2016. The main results show that the greater the ratio between the firm’s growth opportunities and its industry growth opportunities, the lower its leverage indicators. The complementary results suggest that less leveraged firms have this negative relationship to an even stronger degree.

Does corporate governance spillover firm performance? A study of valuation of MENA companies

2019 ◽  
Vol 15 (5) ◽  
pp. 597-620 ◽  
Author(s):  
Mahmoud Arayssi ◽  
Mohammad Issam Jizi
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Financial Performance ◽  
Ownership Concentration ◽  
Board Independence ◽  
Mena Region ◽  
Board Size ◽  
Content Type ◽  
Governance Committee ◽  
The Relationship

PurposeThe aim of the paper is to examine the association of corporate governance (CG), the firms’ characteristics and the financial performance of firms operating in the Middle East and North Africa (MENA) region after Arab Spring. The study focuses on CG, exemplified by boards’ composition and ownership structure. It also explores the possible moderating effects of environmental social and governance characteristics (ESG), leverage and size on the relationship between CG and the company’s performance.Design/methodology/approachUsing Thomson-Reuters database, a sample of 67 firms was extracted in the MENA region to measure CG and financial performance post Arab Spring from 2012 to 2016. Panel GLS regression random effects is used to quantify the relationship; robustness is checked by using several alternative regressions and specifications to the performance measure.FindingsThe results reveal that board independence (BI) is negatively correlated with firm profitability but ownership concentration and board gender diversification contribute to profits. When firms that voluntarily form a governance committee are examined, ownership is less concentrated. We obtain a stronger impact of good governance on performance in these firms: board composition, in general, and workers’ satisfaction generate more profits; and undertaking ESG activities become a more dispensable activity. The effect of board size (BS) and forming a governance committee are studied and ensuing recommendations are drawn. In addition, relevant internal control of firms’ characteristics that strongly predict firms’ market values are discussed in the context of agency and stewardship theories.Originality/valueDespite the fact that governance-performance nexus has been extensively discussed and examined, the focus of this volume of research is on western developed countries. The growing economies of the MENA countries, and the limited governance-performance literature in the MENA context have created a demand to understand the governance environment in these countries and its influence on firm’s performance. In this region where firms’ owners are mainly family members, governments and/or institutions, governance is typically weak; moreover, ownership concentration is expected to guarantee good performance, as the role of independent directors becomes ineffective. For firms where ownership is more diluted, a sound governance system should be established to replace ownership concentration, and to more efficiently monitor management, and consequently improve firm performance. Therefore, this study not only contributes a summary of the prevailing corporate structure in MENA. Moreover, it explains the settings where both the stewardship and agency theories apply in MENA firms. Some recommendation on the importance of changes to the existing governance rules are highlighted in terms of more rules requiring board independence, board gender diversity, limits on board size and establishing governance committees.

scholarly journals The Relationship between Capital Structure and Financial Performance in the Companies Listed in Abu Dhabi Securities Exchange: Evidences from United Arab Emirates

2017 ◽  
Vol 9 (2) ◽  
pp. 1
Author(s):  
Anas Ali Al-Qudah
Keyword(s):  
Capital Structure ◽  
Financial Performance ◽  
United Arab Emirates ◽  
Negative Relationship ◽  
Abu Dhabi ◽  
Debt Ratio ◽  
Return On Equity ◽  
Study Results ◽  
The Relationship ◽  
The Capital Structure

This study aimed to examine the relationship between capital structure and financial performance in the firms listed in Abu Dhabi Securities Exchange (ADX), Profitability Ratios were used to express of the financial performance, and the Debt Ratio was used to express the Capital Structure. A random sample from the companies listed in ADX was taken to achieve the objective this study, it consisted of 48% of all companies in this financial market, and the study period extended from 2008 to 2015. The researcher used Statistical Package for the Social Sciences (SPSS), to analyze the study hypotheses, using ANOVA, model summery and coefficients for the study variables. And the results of this study showed that is positive relationship between the capital structure (Debt Ratio) and the Financial Performance (Profitability: Return on Assets) in ADX. And there is a negative relationship when we used the Return on Equity to express for the Profitability with the capital structure. The overall study results showed that there is significant relationship between capital structure and financial Performance in the companies listed in Abu Dhabi Securities Exchange, and the model of this study able to explanation almost 31% from changes happened in the profitability due to the capital structure. This result was consistent with some previous studies.

Investor sentiment and share returns: evidence on family firms

2016 ◽  
Vol 29 (1) ◽  
pp. 65-83 ◽  
Author(s):  
Elisabete F. Simões Vieira
Keyword(s):  
Family Firms ◽  
Negative Relationship ◽  
Investor Sentiment ◽  
High Concentration ◽  
Content Type ◽  
Growth Firms ◽  
Directorate General ◽  
Using Data ◽  
Finance Theory ◽  
The Relationship

Purpose The purpose of this paper is to examine the effect of investor sentiment on share returns, exploring whether this effect is different for public family and non-family firms. Design/methodology/approach The author uses the European Economic Sentiment Indicator data, from Directorate General for Economic and Financial Affairs as a proxy for investor sentiment and focused on the share returns of family and non-family firms, using panel data methodology. Findings Using data from listed family and non-family firms for the period between 1999 and 2011, in accordance with behavioural finance theory, the results indicate that there is a negative relationship between sentiment and share returns. In addition, the author found no difference between family and non-family firms in what concerns the effect of sentiment on share returns. The evidence also suggests that young, large and medium growth firms are most affected by sentiment. Finally, the results suggest that the evidence concerning the relationship between sentiment and returns is sensitive to the proxy used to measure the sentiment. Research limitations/implications A limitation of this study is the small size of the sample, which is due to the small size of the Portuguese stock market, the Euronext Lisbon. Originality/value This paper offers some insights into the effect of investor sentiment on the share returns in the context of public family firms, a strand of finance that is scarcely developed. It also contributes to the analysis of a small European country, with a high concentration of equity ownership.

scholarly journals Cost Of Debt And Dividend Policy: Evidence From The MENA Region

2015 ◽  
Vol 31 (5) ◽  
pp. 1637 ◽  
Author(s):  
Omar Farooq ◽  
Imad Jabbouri
Keyword(s):  
Emerging Markets ◽  
Dividend Policy ◽  
Value Relevance ◽  
Negative Relationship ◽  
Cost Of Debt ◽  
Information Asymmetries ◽  
Mena Region ◽  
Dividend Payout ◽  
Policy Effect ◽  
The Relationship

<p>How does dividend policy effect cost of debt in emerging markets? Does it increase the perceived conflict of interests between creditors and shareholders or vice versa? This paper seeks to answer these questions by documenting the relationship between dividend payout ratios and cost of debt in emerging markets. Using a dataset from the MENA region, we document a significantly negative relationship between dividend payout ratios and cost of debt during the period between 2005 and 2011. We argue that high dividend payouts reduce information asymmetries. Consequently, creditors demand lower return for providing their capital to firms. We also show that the negative relationship between dividend payout ratios and cost of debt are more pronounced in firms with higher information asymmetries. It indicates that value relevance of high dividend payout ratios is more in firms that have higher information asymmetries. These firms have scarcity of information. Therefore, whenever information environment improves, it is highly valued by creditors.</p>

Do corporate diversification and earnings management practices affect capital structure?

2015 ◽  
Vol 7 (4) ◽  
pp. 360-378 ◽  
Author(s):  
Ranjitha Ajay ◽  
R Madhumathi
Keyword(s):  
Capital Structure ◽  
Earnings Management ◽  
Management Practices ◽  
Negative Relationship ◽  
Corporate Diversification ◽  
Content Type ◽  
Diversification Strategies ◽  
Market Product ◽  
Diversified Firms ◽  
The Impact

Purpose – The purpose of this paper is to empirically examine the impact of earnings management on capital structure across firm diversification strategies. Design/methodology/approach – The study focuses on firms operating in the manufacturing sector (diversified and focused). Panel data methodology compares diversification strategies and identifies the impact of diversification strategy with earnings management practices on capital structure decision. Findings – International and product diversified firms have lower levels of leverage than focused firms in their capital structure. Asset-based earnings management is positive for diversified (market/product) firms. Earnings management using discretionary expenditure (project based) is found to be higher for market diversified but product-focused firms. Earning smoothing method is found to be significant for focused firms and shows a negative relationship with capital structure. Originality/value – This study offers an insight into the relationship between corporate diversification, earnings management and capital structure decisions of manufacturing firms. The results provide an important contribution to accounting and strategy literature. A distinction is made between market- and product-diversified firms and influence of earnings management practices (asset-based, project-based and earnings smoothing (ESM)) on capital structure decisions. Diversified firms (market/product) tend to have lower levels of leverage than focused firms and earnings management practices within firm groups significantly influence the capital structure decisions.

Financial and social efficiency analysis of Islamic microfinance institutions

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Marwa Fersi ◽  
Mouna Bougelbène
Keyword(s):  
Capital Structure ◽  
Credit Risk ◽  
Risk Taking ◽  
Negative Impact ◽  
Microfinance Institutions ◽  
Social Efficiency ◽  
Content Type ◽  
Islamic Microfinance ◽  
The Impact ◽  
The Relationship

PurposeThe purpose of this paper was to investigate the impact of credit risk-taking on financial and social efficiency and examine the relationship between credit risk, capital structure and efficiency in the context of Islamic microfinance institutions (MFIs) compared to their conventional counterparts.Design/methodology/approachThe stochastic frontier approach was used to estimate the financial and social efficiency scores, in a first step. In a second step, the impact of risk-taking on efficiency was evaluated. The authors also took into account the moderating role of capital structure in this effect using the fixed and random effects generalized least squares (GLS) with a first-order autoregressive disturbance. The used dataset covers 326 conventional MFIs and 57 Islamic MFIs in six different regions of the world over the period of 2005–2015.FindingsThe overall average efficiency scores are less than 50%, where CMFIs could have produced their outputs using 48% of their actual inputs. IMFIs record the lowest financial (cost) efficiency that is equal to 28% on average. The estimation results also reveal a negative impact of nonperforming loan on financial and social efficiency. Finally, the moderating effect of leverage funding on the relationship between credit risk-taking and financial efficiency was confirmed in CMFIs. However, leverage seems to moderate the effect of risk-taking behavior on social efficiency for IMFIs.Originality/valueThis paper makes an initial attempt to evaluate the effect of risk-taking decision and its implication on efficiency and MFIs' sustainability. Besides, it takes into consideration the role played by the mode of governance through the ownership structure. In addition, this research study sheds light on the importance of the financial support for the development and sustainability of these institutions, which in return, contributes to a sustainable economic development.

I'll manage myself: the moderator effect of positive framing on the relationship between organisational politics and engagement

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Robinson James
Keyword(s):  
Work Engagement ◽  
Structural Equation ◽  
Harmful Effect ◽  
Negative Relationship ◽  
Partial Least Square ◽  
Least Square ◽  
Moderator Effect ◽  
Content Type ◽  
The Relationship ◽  
Organisational Politics

PurposeThis study aims to investigate the influence of organisational politics on work engagement and the moderator effect of positive framing on this relationshipDesign/methodology/approachData were collected from 241 public sector employees in Sri Lanka through a structured questionnaire and analysed with partial least square structural equation modelling (PLS_SEM).FindingsThe results indicated that organisational politics negatively influenced employees' work engagement, positive framing positively influenced engagement and weakened the negative relationship between politics and engagement.Practical implicationsThis study suggests that organisation and individuals must take the necessary steps to enhance work engagement. Organisations must be transparent in all activities to avoid employees' negative perception. Also, organisations need to take steps to recruit employees with positive framing or develop this competency through training and development. Individuals also need to take necessary steps to frame the work environment positively to enhance their engagement in work.Originality/valueThis study extends the literature by being the first to examine the positive framing as a moderator in the relationship between politics and engagement. This study found that positive framing as a resource reduced the harmful effect of organisational politics on engagement and suggested positive framing can be considered as a resource in the future investigation of the job demand–resource model.

scholarly journals The influence of firm, industry and concentrated ownership on dynamic capital structure decision in emerging market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Razali Haron ◽  
Naji Mansour Nomran ◽  
Anwar Hasan Abdullah Othman ◽  
Maizaitulaidawati Md Husin ◽  
Ashurov Sharofiddin
Keyword(s):  
Capital Structure ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Dynamic Environment ◽  
Order Theory ◽  
Ownership Concentration ◽  
Content Type ◽  
Dynamic Panel Model ◽  
The Impact ◽  
Dynamic Capital Structure

Purpose This study aims to evaluate the impact of firm, industry level determinants and ownership concentration on the dynamic capital structure decision in Indonesia and analyses the governing theories. Design/methodology/approach This study uses the dynamic panel model of generalized method of moments-System (one-step and two-step) by using a panel data from 2000 to 2014 to examine the relationship between the determinants and leverage. The results are robust to the various definitions of leverage, heterogeneity, autocorrelation, multicollinearity and endogeneity concern. Findings Growing firms and firms operating in a highly concentrated industry use high level of debt, taking advantage of the tax shield (trade-off theory). However, if the firms are operating in a highly dynamic environment, they take on less debt as to avoid bankruptcy risk. Firms in Indonesia opt for debt financing perhaps to act as a controlling mechanism to mitigate agency conflicts that may exist between the large controlling shareholders and the minority. Aged and highly profitable firms with high tangible and intangible assets and liquidity level operating in a high dynamic environment follow the pecking order theory. Research limitations/implications This study does not perform each industry regression individually. All the industries are pooled together, as the main focus of this study is to examine the factors affecting leverage of firms in general without giving particular attention to individual industry. Originality/value The insights on the impact of ownership concentration and industry characteristics are novel especially on Indonesia, thus fill the gap in the literature.

Breach or bridge your career? Understanding the relationship between career plateau and internal employability

2018 ◽  
Vol 47 (5) ◽  
pp. 986-1002 ◽  
Author(s):  
Yi-chun Lin ◽  
Angela Shin-yih Chen ◽  
Yu-ting Lai
Keyword(s):  
Psychological Contract ◽  
Negative Relationship ◽  
Psychological Contract Breach ◽  
Hierarchical Regression ◽  
Contract Breach ◽  
Content Type ◽  
Career Plateau ◽  
Job Content ◽  
The Impact ◽  
The Relationship

Purpose The purpose of this paper is to identify the impact of career plateau (hierarchical and job-content plateau) on internal employability, and to investigate psychological contract breach as a moderator on the relationship between career plateau (hierarchical and job-content plateau) and internal employability. Design/methodology/approach Data were collected by distributing paper-based questionnaires to 521 workers in private banking sectors in Taiwan. Hierarchical regression analysis was used to examine the results of the relationships. Findings The results supported the idea that career plateau (hierarchical and job-content plateaus) could be a significant antecedent of internal employability. Psychological contract breach significantly moderated the negative relationship between career plateau (hierarchical and job-content plateau) and internal employability. Specifically, the negative relationship between career plateau and internal employability will be stronger for employees who perceive a higher level of psychological contract breach. Practical implications These findings can help human resource practitioners gain a better understanding of the value of applicable approaches as an influence on a plateaued employee’s perception of internal employability, and to facilitate a positive employer–employee relationship, which could foster both a successful career for an individual and a prosperous performance for the organization that employs them. Originality/value Career plateau have been aroused variety issues in HR practice, but employability and psychological contract breach have barely been discussed with career plateau. This study empirically establishes the correlation between career plateau and internal employability as well as shown that psychological contract breach would decrease the plateaued individual’s willingness to stay in the current organization. Thus, the career plateau may provide organizations with a helpful perspective on one’s career development. Building substantial relationships between employees and employers lead to better human capital for organizations as it deals with rapidly changes in the real world.

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