THE CATALYSTS

Effect of Board Composition & Family

Ownership on Debt Financing
of Listed Companies in the Pharmaceuticals Industry
 Importance of Debt Financing Decisions
- 31

• Too much leverage can hurt firm value.

MUKTADIR RAHMAN

Value (MM2)
• Modigliani-Miller
Value (Actual)
Propositions
• Board Approves
Financing Decisions
Debt

Effect of Board Size, Composition & Ownership; on

Debt Financing
- 31

Limitations of the Study

MUKTADIR RAHMAN

28 1000 Single Panel

samples samples+ year data data

Regardless, this study provides key findings in unexplored

areas regarding debt financing.
ASHRAFUL ISLAM - 43

Literature Review

Corporate governance is a contributing

factor in firms financial decision making

- Friend & Lang, 1988, p. 273; Abor, 2007, p. 91
 Capital Structure – DER
ASHRAFUL ISLAM - 43

↑Board ↑Indepe ↑NED -FAM

DER↓ ndence DER↑ DER-
(Sani et al.,
2020, p. 622;
DER↑ (Abor, 2007, p.
91)
(Uddin et al.,
2019, p. 50)
Yusuf & Sulung, (Alves et al.,
2019, p. 233) 2014)
 Cost of Debt – INT_RATE & W_rD
ASHRAFUL ISLAM - 43

↑Board ↑Indepe ↑NED ↑FAM*

CoD↓ ndence CoD↑ CoD↑
((Anderson et
al., 2003, p. 1;
CoD↓ (Paige Fields et
al., 2012, p.
(Perdana &
Kusumastuti,
Upadhyay & (Alves et al., 1545).; 2011, p. 149)
Sriram, 2011, p. 2014) Anderson et al.,
1244) 2003, p. 1) *insignificant

There’s little research on DFL - Degree of Financial Leverage

 Methodology
Board Size Ownership
MOWDUDUR RAHMAN - 05

 FAM_OWN
Composition  OWN_TYPE
28  R_EXEC
companies  R_NED Control
 R_ID  Ln_TA
 R_FEM  Ln_EQUITY
 R_FOR  Ln_AVGDEBT
4 

R_FAM
R_ID
 Ln_REV
unavailable
 Methodology
Dependent Var. Analysis Tools
MOWDUDUR RAHMAN - 05

 Correlation
Capital Structure  Automatic Linear Modeling
 DER  Linear Regression
Cost of Debt
 INT_RATE Debt Financing (y) = B + m1*Board + m2
 W_rD
*Composition + m3*Family Ownership +
Leverage m4*Control
 DFL
Findings
 Pharmaceuticals Industry
TOWFIQUZZAMAN - 33

FAMILY OWNERSHIP (42.9%)

5
29.95% Family Director’s Shareholding
12
Board Size (AVG.) = 7
11 Percentage of Family Directors (AVG.) = 30.58%

Family Institutional General

TOWFIQUZZAMAN - 33

Capital Structure - DER

 Effect on Capital Structure
Correlations
TOWFIQUZZAMAN - 33

BOARD R_EXEC R_NED R_ID R_FEM R_FOR R_FAM R_AUD FAM_OWN

Pearson
Correlation -.107 -.016** .057** -.066** .138 .091* .274 -.079** .734
DER
Sig. (1-
tailed) .294 .468 .386 .369 .242 .322 .079 .346 .000

Family Director’s Ownership (FAM_OWN) is positively associated with Capital

Structure (DER).
 Effect on Capital Structure
Adjusted R-Square = .768
TOWFIQUZZAMAN - 33

Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) -.143 1.225 -.117 .908

R_FAM -.013 .006 -.394 -2.324 .029

FAM_OWN .049 .010 .891 4.873 .000
Ln_TA .693 .233 1.203 2.968 .007
Ln_EQUITY -.695 .227 -1.311 -3.066 .005
a. Dependent Variable: DER

DER = -0.143 -0.013*R_FAM + 0.049*FAM_OWN + 0.693*Ln_TA -0.695*Ln_EQUITY

SIBAT AL – NISTAS - 19

Cost of Debt
 Effect on Cost of Debt – INT_RATE
SIBAT AL – NISTAS - 19

Correlations

BOARD R_EXEC R_NED R_ID R_FEM R_FOR R_FAM R_AUD FAM_OWN

Pearson
Correlation -.197** .105 -.280** .303 -.230 .431 -.250 .620** -.301
INT_RATE
Sig. (1-
tailed) .172 .309 .087 .070 .134 .016 .114 .000 .072

INT_RATE has moderate to strong positive association with Percentage of

Foreign Directors (R_FOR) & Percentage of Audit Committee Members (R_AUD).
 Effect on Cost of Debt – INT_RATE
SIBAT AL – NISTAS - 19

Adjusted R-Square = .688

Coefficientsa
Unstandardized Standardized

Model Coefficients Coefficients t Sig.

B Std. Error Beta

(Constant) -132.973 24.846 -5.352 .000

1 BOARD 7.997 1.557 1.174 5.138 .000

R_AUD 1.435 .198 1.563 7.233 .000

Ln_AVGDEBT 1.013 .388 .355 2.610 .016

a. Dependent Variable: INT_RATE

 Effect on Cost of Debt – W_rD
SIBAT AL – NISTAS - 19

Correlations

BOARD R_EXEC R_NED R_ID R_FEM R_FOR R_FAM R_AUD FAM_OWN

Pearson
Correlation .191** .034** -.010 -.013** -.175 .511 -.298 .152** -.365
W_rD
Sig. (1-tailed) .165 .432 .481 .474 .186 .003 .061 .221 .028

W_rD has moderate positive association with Percentage of Foreign Directors

(R_FOR) & Family Director’s Ownership (FAM_OWN).
 Effect on Cost of Debt – W_rD
SIBAT AL – NISTAS - 19

Adjusted R-Square = .414

Coefficientsa
Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B Std. Error Beta

(Constant) -8.998 17.982 -.500 .621

1 FAM_OWN -.199 .082 -.364 -2.437 .023

Ln_EQUITY -4.181 1.308 -.787 -3.196 .004
Ln_REV 5.075 1.271 .978 3.994 .001
a. Dependent Variable: W_rD
SIBAT AL – NISTAS - 19

Cost of Debt

INT_RATE = -132.973 + 7.997*BOARD + 1.435*R_AUD + 1.013*Ln_AVGDEBT

W_rD = -8.998 -.199*FAM_OWN -4.181*Ln_EQUITY + 5.075*Ln_REV

SIBAT AL – NISTAS - 19

Degree of Financial Leverage - DFL

 Effect on Degree of Financial Leverage
SIBAT AL – NISTAS - 19

Correlations

BOARD R_EXEC R_NED R_ID R_FEM R_FOR R_FAM R_AUD FAM_OWN

Pearson
Correlation -.192** .214 -.478** .491 .106 .105 .164 .040** .150
DFL
Sig. (1-tailed) .164 .137 .005 .004 .296 .297 .202 .420 .223

DFL has moderate negative association with R_NED & moderate positive
association with R_ID.
 Effect on Degree of Financial Leverage
SIBAT AL – NISTAS - 19

Adjusted R-Square = .285

Coefficientsa
Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B Std. Error Beta

(Constant) .432 .263 1.646 .112

1
R_ID .019 .007 .444 2.694 .012
Ln_AVGDEBT .020 .011 .315 1.911 .068
a. Dependent Variable: DFL

DFL = .432 + .019*R_ID + .020*Ln_AVGDEBT

 Conclusion
SIBAT AL – NISTAS - 19

↑R_FOR ↑R_FOR ↑R_ID

INT_RATE↑ W_rD↑ DFL↑
↑FAM_OWN
DER↑
↑FAM_OWN ↑FAM_OWN ↑R_NED
INT_RATE↑ W_rD↓ DFL↓

OWNERSHIP COMPOSITION & OWNERSHIP COMPOSITION

THE CATALYSTS

Thank you!
SIBAT AL – NISTAS 19 MOWDUDUR RAHMAN 05
TOWFIQUZZAMAN 33 MUKTADIR RAHMAN 31
ASHRAFUL ISLAM 43