Leverage, Ownership Structure and Firm Performance: Evidence from Karachi Stock Exchange
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Published:
2024-04-11
Keywords:
Tobin’s Q, Ownership, Return on Assets, Firm Performance, Leverage, Karachi Stock Exchange,
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Abstract
This study aims to investigate the relationship between the ownership structure and firm performance. The study uses two performance measures i.e. market-based performance measure (Tobin’s Q) and accounting-based performance measure (return on assets (ROA)) as dependent variables and ownership proxies and other control variables as independent variables whereas leverage is used as moderating variable. The ownership proxies include the managerial ownership and institutional ownership while the control variables include the size of the firm, the coefficient of variation, and growth. This study has used simple regression analysis while using data of 355 firms listed on Karachi Stock Exchange (KSE) for the years 2003 to 2008. The results show that the ownership structure has significant relationship with the market-based performance measure, while it has insignificant relationship with the accounting-based performance measure. Moreover, the leverage has no moderating effect on the relationship between ownership structure and firm performance
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Research Article
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How to Cite
Leverage, Ownership Structure and Firm Performance: Evidence from Karachi Stock Exchange. (2024). Journal of Management Info, 2(2), 1-7. https://doi.org/10.31580/jmi.v6i1.41
References
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Fama, E. F., & M.C. Jensen. (1983). Separation of ownership and control. JL & Econ, 26, 301.
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McConnel, J. J., & H. Servaes. (1995). Equity ownership and two faces of debt. Journal of Financial Economics, 39, 131-157.
Modigliani, F., & M. Miller. (1958). The cost of capital, corporate finance and the theory of investment. American Economic Review, 48, 261-97.
Modigliani, F., & M. Miller. (1963). Corporate income taxes and the cost of capital: a correction. American Economic Review, 53, 443-53.
Margaritis, D., & M. Psillaki. (2010). Capital structure, equity ownership and firm performance. Journal of Banking & Finance, 34, 3, 621-632.
Mehran, H. (1995). Executive compensation structure, ownership, and firm performance. Journal of Financial Economics, 38, 163-184.
Morck, R., A. Shleifer, & R. W. Vishny. (1988). Management ownership and market valuation: An empirical analysis. Journal of financial Economics, 20, 293–315.
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Memon. F., N. A. Bhutto., & G. Abbas. (2012). Capital Structure and Firm Performance: A Case of Textile Sector of Pakistan. Asian Journal of Business and Management Sciences, 1, 9, 09-15.
Qureshi, M. I., Rasli, A. M., Awan, U., Ma, J., Ali, G., Alam, A., et al. (2014). Environment and air pollution: health services bequeath to grotesque menace. Environmental Science and Pollution Research, 1-10.
Razak, N. H. A., R. Ahmad., & H. J. Aliahmed. (2008). Government ownership and performance: An analysis of listed companies in Malaysia. Corporate Ownership and Control, 6, 2, 434-442.
Rajan, R. & L., Zingales. (1995). What do we know about capital structure? Some evidence from international data. The Journal of Finance, 50, 1421-60.
Roden, D. & Lewellen, W. (1995). Corporate capital structure decisions: evidence from leveraged buyouts. Financial Management, 24, 76-87.
Pushner, G. M. (1995). Equity ownership structure, leverage, and productivity: Empirical evidence from Japan. Pacific-Basin Finance Journal, 3, 2-3, 241–255.
Saeedi, A., & I. Mahmoodi. (2011). Capital Structure and Firm Performance: Evidence from Iranian Companies. International Research Journal of Finance and Economics.
Siddiqui, A. M., & A. Shoaib. (2011). Measuring performance through capital structure: Evidence from banking sector of Pakistan. African Journal of Business Management, 5, 5, 1871-1879.
Shah, A., & S. A. Khan. (2009). Empirical investigation of debt-maturity structure: Evidence from Pakistan. The Pakistan Development Review, 48, 4,565-578
Tang, C. H., & S. S., Jang. (2007). Revisit to the determinants of capital structure: a comparison between lodging firms and software firms. International Journal of Hospitality Management, 26, 1, 175-87.
Tian, G. G., & R. Zeitun. (2007). Capital structure and corporate performance: evidence from Jordan. Australian Accounting Business and Finance Journal, 1, 4.
Zubairi, H. J. (2010). Impact of Working Capital management and capital structure on profitability of automobile firms in Pakistan. Finance and Corporate Governance Conference 2011 Paper.
Arbabiyan, Ali-Akbar & Safari, M. (2009). The effects of capital structure and profitability in the listed firms in Tehran Stock Exchange. Journal of Management Perspective, 33, 159-175.
Berger, A., & E. Bonaccorsi di Patti. (2006). Capital structure and firm performance: a new approach to testing agency theory and an application to the banking industry. Journal of Banking and Finance, 30, 1065-102.
Berger at el. (2006). Capital structure and firm performance: A new approach to testing agency theory and an application to the banking industry. Journal of Banking & Finance, 30, 4, 1065–1102.
Berle, A. A., & G. C. Means. (1932). The modern corporation and private property. New York: Harcourt, Brace and World.
Booth, L., Aivazian, V., Hunt, A., & Maksimovic, D. (2001). Capital structure in developing countries. Journal of Finance, 56, 87-130.
Chakraborty, I. (2010). Capital structure in an emerging stock market: The case of India. Research in International Business and Finance, 24, 295-314.
Driffield N., V. Mahambare, & S. Pal. (2006). How does ownership structure affect capital structure and firm performance? Recent Evidence from East Asia. Working paper Brunel University, UK.
Demsetz, H. (1983). The structure of ownership and the theory of the firm. Journal of Law and Economics, 26, 375-390.
Fama, E. F., & M.C. Jensen. (1983). Separation of ownership and control. JL & Econ, 26, 301.
Fama, E., & R. K. French. (2002). Testing trade off and pecking order predictions about dividends and debt. The review of financial studies, 15, 1, 1-33.
Friend, I., & L. Lang. (1988). An empirical test of the impact of managerial self-interest on corporate capital structure. Journal of Finance, 43, 271-81.
Huang, S., & F. Song. (2006). The determinants of capital structure: evidence from China. China Economic Review, 17, 1, 14-36.
Hirshleifer, J. (1966). Investment decision under uncertainty: Applications of the state preference approach. The Quarterly Journal of Economics, 80, 2, 252.
Jensen, M. C., & W. H. Meckling. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3, 4, 305– 360.
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76, 2, 323–329.
Karadeniz, E., Y. S. Kandir., M. Balcilar. & B. Y. Onal. (2009). Determinants of capital structure: evidence from Turkish lodging companies. International Journal of Contemporary Hospitality Management, 21, 5, 594-609.
Khan, A. (2014). How Does Stock Prices Respond to Various Macroeconomic Factors? A Case Study of Pakistan. Journal of Management Info, 4(1), 75-95.
Khan, F., Yusoff, R. M., & Khan, A. (2014). Job Demands, Burnout and Resources in Teaching a Conceptual Review. World Applied Sciences Journal, 30(1), 20-28.
Khan, A. G. (2012). The relationship of capital structure decisions with firm performance: A study of the engineering sector of Pakistan. International Journal of Accounting and Financial Reporting, 2, 1, 2162-3082.
La Porta, R., Lopez de Lilanes, F., & A. Shleifer. (2000). Agency problems and dividend policies around the world. Journal of Finance, 56, 1, 1-33.
McConnel, J. J., & H. Servaes. (1995). Equity ownership and two faces of debt. Journal of Financial Economics, 39, 131-157.
Modigliani, F., & M. Miller. (1958). The cost of capital, corporate finance and the theory of investment. American Economic Review, 48, 261-97.
Modigliani, F., & M. Miller. (1963). Corporate income taxes and the cost of capital: a correction. American Economic Review, 53, 443-53.
Margaritis, D., & M. Psillaki. (2010). Capital structure, equity ownership and firm performance. Journal of Banking & Finance, 34, 3, 621-632.
Mehran, H. (1995). Executive compensation structure, ownership, and firm performance. Journal of Financial Economics, 38, 163-184.
Morck, R., A. Shleifer, & R. W. Vishny. (1988). Management ownership and market valuation: An empirical analysis. Journal of financial Economics, 20, 293–315.
Myers, S. (1984). The capital structure puzzle. Journal of Finance, 39, 575-592.
Memon. F., N. A. Bhutto., & G. Abbas. (2012). Capital Structure and Firm Performance: A Case of Textile Sector of Pakistan. Asian Journal of Business and Management Sciences, 1, 9, 09-15.
Qureshi, M. I., Rasli, A. M., Awan, U., Ma, J., Ali, G., Alam, A., et al. (2014). Environment and air pollution: health services bequeath to grotesque menace. Environmental Science and Pollution Research, 1-10.
Razak, N. H. A., R. Ahmad., & H. J. Aliahmed. (2008). Government ownership and performance: An analysis of listed companies in Malaysia. Corporate Ownership and Control, 6, 2, 434-442.
Rajan, R. & L., Zingales. (1995). What do we know about capital structure? Some evidence from international data. The Journal of Finance, 50, 1421-60.
Roden, D. & Lewellen, W. (1995). Corporate capital structure decisions: evidence from leveraged buyouts. Financial Management, 24, 76-87.
Pushner, G. M. (1995). Equity ownership structure, leverage, and productivity: Empirical evidence from Japan. Pacific-Basin Finance Journal, 3, 2-3, 241–255.
Saeedi, A., & I. Mahmoodi. (2011). Capital Structure and Firm Performance: Evidence from Iranian Companies. International Research Journal of Finance and Economics.
Siddiqui, A. M., & A. Shoaib. (2011). Measuring performance through capital structure: Evidence from banking sector of Pakistan. African Journal of Business Management, 5, 5, 1871-1879.
Shah, A., & S. A. Khan. (2009). Empirical investigation of debt-maturity structure: Evidence from Pakistan. The Pakistan Development Review, 48, 4,565-578
Tang, C. H., & S. S., Jang. (2007). Revisit to the determinants of capital structure: a comparison between lodging firms and software firms. International Journal of Hospitality Management, 26, 1, 175-87.
Tian, G. G., & R. Zeitun. (2007). Capital structure and corporate performance: evidence from Jordan. Australian Accounting Business and Finance Journal, 1, 4.
Zubairi, H. J. (2010). Impact of Working Capital management and capital structure on profitability of automobile firms in Pakistan. Finance and Corporate Governance Conference 2011 Paper.