What is it about?
Paper examines the relationship between ownership structure and firm leverage ratios. Choice of debt in capital structure is important for all firms and scale effects may influence the degree of influence of particular financial theories upon capital structure. The findings suggest an inverse U-shape relationship of insider ownership and leverage, indicating higher insider ownership increases management entrenchment while lower insider ownership increases misalignment of the interests of management and owners. Moreover, this study finds bi-directional causation between insider ownership and firm leverage ratios.
Why is it important?
Understanding the impact of lower levels of transparency of companies on their capital strucutre provides a window on the cost of uncertaintly in terms of not leveraging optimally and lenders not apitalising on a market share.
The following have contributed to this page: Professor Stuart Locke and Nirosha Wellalage
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