EAST ASIAN CORPORATE GOVERNANCE: A TEST OF THE RELATION BETWEEN CAPITAL STRUCTURE AND FIRM PERFORMANCE

Öz

Corporate governance theory predicts that leverage affects agency costs and thereby influences firm performance. Agency costs represent important problems in corporate governance in both financial and non-financial industries. Prior evidences have demonstrated an association between ownership structures, capital structure, and firm performance. This study extends the literature by proposing a further link between capital structure and firm performance in term of post Asian Financial Crisis that is rarely investigated. Using an agency framework, the research argues that the distribution of equity ownership among corporate managers and external block holders has a significant relationship with leverage and firm performance, and there is reverse causality effect between ownership structure, capital structure, and firm performance. The paper tests two hypotheses that explore various aspects of this relationship. This study uses 532 East Asian companies, which are located in seven most affected countries when the crisis took place during period 1996-1997. The time frame of analysis is 2000-2001 period that is believed as a start of recovery period. Statistic methods used for testing the hypothesis are t-test and multivariate regression model. The empirical results indicate that the East Asian companies after the crisis apply the efficiency-risk argument. In analyzing the reverse causation of capital structure and corporate performance relation, the result confirms the incentive signaling approach, which debt can be used to signal the fact that firm has prospect and equity issues may be interpreted as a negative signal.

Anahtar Kelimeler

• Agency Cost, Ownership Structure, Leverage, Firm Performance

Kaynakça

1. Balakrishnan, S. and I. Fox. (1993), “Asset specificity, firm heterogeneity and capital structure”,
2. Strategic Management Journal, Vol. 14, pp. 3-16. Baysinger, B. and Hoskisson, R. E. (1989), “Diversification strategy and R&D intensity in multiproduct”, Academy of Management Journal, 32(2), pp.310-332.
3. Berger, A. N. & di Patti, E. B. (2002), "Capital structure and firm performance: a new approach to testing agency theory and an application to the banking industry," Finance and Economics
4. Discussion Series 2002-54, Board of Governors of the Federal Reserve System (U.S.).
5. Brailsford, T.J, Oliver, B.R., and Pua, S.L.H. (2002), “On the relation between ownership structure and capital structure”, Journal of Accounting and Finance 42, pp. 1-26.
6. DeAngelo, H. and R. Masulis. (1980), “Optimal capital structure under corporate and personal taxation”, Journal of Financial Economics, Vol. 8 (1), pp. 3-29.
7. Gleason, K. C., Mathur, L. L., and Mathur, I. (2000), “The Interrelationship between Culture,
8. Capital Structure, and Performance: Evidence from European Retailers”, Journal of Business Research, Vol. 50 (November), pp. 185–191. Grossman, S. and O. Hart. (1982), “Takeover bids, the free-rider problem and the theory of the corporation”, Bell Journal of Economics 11 (1), pp. 42-64.

9. Harris, M., and Raviv, A. (19910, "The Theory of Capital Structure," Journal of Finance 46, March 1991, pp. 297-355.
10. Jensen, M. C. (1986), “Agency costs of free cash flow, corporate finance and takeovers”,
11. American Economic Review, Vol. 76 (2), pp. 323–329. Jensen, M. C. and Meckling, W. H. (1976), “Theory of the firm: Managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3 (4), pp. 305–360.
12. Myers, S. (1977), “Determinants of corporate borrowing”, Journal of Financial Economics 5 (2), 175.
13. Myers, S. C. and Majluf, N. S. (1984), “Corporate financing and investment decisions when firms have information that investors do not have”, Journal of Financial Economics, Vol. 13 (2), pp. –221.
14. Myers, S.C. (2001), “Capital Structure”, Journal of Economic Perspectives, 15 (2), pp. 81-102.
15. Ross, S. A. (1977), “The determination of financial structure: The incentive-signaling approach”,
16. Bell Journal of Economics (now: RAND Journal of Economics), Vol. 8 (1), pp. 23–40. Sarkar, J. and Sarkar, S. (2005), “Multiple Board Appointments and Firm Performance in
17. Emerging Economies: Evidence from India”, Indira Gandhi Institute of Development Research Working Paper Series No. WP-2005-001.