Ownership, Capital Structure and Financing Decision: Evidence from the UK

Sun, J.; Ding, L.; Guo, M.; Li, Y.

doi:10.1016/j.bar.2015.04.001

Ownership, Capital Structure and Financing Decision: Evidence from the UK

Sun, J.; Ding, L.; Guo, M.; Li, Y.

Authors

J. Sun

Dr Li Ding li.ding@durham.ac.uk
Professor

Professor Michael Guo jie.guo@durham.ac.uk
Professor

Y. Li

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.

Citation

Sun, J., Ding, L., Guo, M., & Li, Y. (2016). Ownership, Capital Structure and Financing Decision: Evidence from the UK. The British Accounting Review, 48(4), 448-463. https://doi.org/10.1016/j.bar.2015.04.001

Journal Article Type	Article
Acceptance Date	Apr 17, 2015
Online Publication Date	Apr 18, 2015
Publication Date	Dec 1, 2016
Deposit Date	Apr 30, 2015
Publicly Available Date	Apr 18, 2017
Journal	British Accounting Review
Print ISSN	0890-8389
Electronic ISSN	1095-8347
Publisher	Elsevier
Peer Reviewed	Peer Reviewed
Volume	48
Issue	4
Pages	448-463
DOI	https://doi.org/10.1016/j.bar.2015.04.001
Keywords	Ownership, Capital structure, Market valuation, Security issuance, Agency theory.
Public URL	https://durham-repository.worktribe.com/output/1409477

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Copyright Statement
NOTICE: this is the author’s version of a work that was accepted for publication in The British Accounting Review. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in The British Accounting Review, Volume 48, Issue 4, December 2016, 10.1016/j.bar.2015.04.001.