Int. J. Corporate Governance, Vol. 10, Nos.

3/4, 2019 311

Ownership identity and cost of debt in an emerging

market: pre- and post-crisis analysis

Imad Jabbouri*
School of Business Administration,
Al Akhawayn University in Ifrane,
Ifrane, Morocco
Email: i.jabbouri@aui.ma
*Corresponding author

Maryem Naili
The Higher Institute of Commerce and
Business Administration – Groupe ISCAE,
Casablanca, Morocco
Email: m.naili@aui.ma

Chaimae Nouina
School of Business Administration,
Al Akhawayn University in Ifrane,
Ifrane, Morocco
Email: c.nouina@aui.ma

Abstract: This research investigates the relationship between ownership

identity and cost of debt in the emerging market of Morocco spanning the
period from 2004 to 2016. The study employs a panel data analysis and
documents that the presence of institutional ownership is negatively related to
cost of debt, whereas the presence of family ownership is positively related
to cost of debt. Ownership identity reflects a given quality of governance
mechanisms within the firm, which affects creditors’ confidence positively or
negatively. This study pursues innovation by examining whether the value
relevance of ownership identity changes as market conditions change. The
results are more pronounced in the post-crisis period compared to the pre-crisis
period. We argue that the incentives for insiders to expropriate increase during
economic downturns. Mindful of the deterioration of corporate governance
during economic slumps, the importance creditors attach to ownership identity,
as an indicator of governance quality, increases during the post-crisis period.

Keywords: ownership identity; cost of debt; corporate governance; financial

crisis; agency problems; emerging markets.

Reference to this paper should be made as follows: Jabbouri, I., Naili, M. and
Nouina, C. (2019) ‘Ownership identity and cost of debt in an emerging market:
pre- and post-crisis analysis’, Int. J. Corporate Governance, Vol. 10, Nos. 3/4,
pp.311–334.

Copyright © 2019 Inderscience Enterprises Ltd.

312 I. Jabbouri et al.

Biographical notes: Imad Jabbouri is a Professor of Finance and Accounting

at the Al Akhawayn University in Ifrane, Morocco. He was awarded the CFA
Charter in 2014. His research interests are corporate finance with a focus in
dividend policy, ownership structure and corporate governance in emerging
markets. He has published in several academic journals such as Managerial
Finance, Research in International Business and Finance, Economics Bulletin,
and Review of Behavioral Finance.

Maryem Naili holds an MBA from the Al Akhawayn University in Ifrane. She
works in the banking industry and she is currently pursuing her PhD in Finance
in the ISCAE Business School (The Higher Institute of Commerce and
Business Administration). Her research interests include risk management,
corporate finance and banking.

Chaimae Nouina holds a Bachelor’s degree in Business Administration with

honours from the Al Akhawayn University in Ifrane, Morocco. Currently, she
is pursuing her MSc in Finance at the Nova School of Business and Economics
in Portugal. Her research interests include corporate finance, corporate
governance, dividend policy and financial markets.

1 Introduction

The ultimate goal of managers is to maximise shareholders’ wealth. In the pursuit of this
objective, managers strive to lower their cost of debt in order to minimise their cost of
capital. In fact, the cost of debt is largely influenced by various risks that could
potentially affect a firm’s ability to service its debt obligations (Fisher, 1959; Horrigan,
1966; Kaplan and Urwitz, 1979; Weinstein, 1981). Particularly, the quality of corporate
governance is one of the main factors that shape the riskiness of a firm and influence its
cost of debt. As a matter of fact, the quality of corporate governance affects cost of debt
in two dimensions. First, decent governance lessens agency problems and improves
firms’ operating performance and efficiency (Conyon and Schwalbach, 2000; DeAngelo
and Rice, 1983; Mishra and Mohanty, 2018). The non-divergence of a firm’s assets and
the fortification of its operating performance boost its ability to honour its liabilities and
reduce its likelihood of default. Second, improvement of the governance environment
extends a positive change on the quality of information disclosure and reduces earning
manipulation, which lowers cost of debt (Armstrong et al., 2010; Beekes and Brown,
2006).
In emerging markets, usually characterised by weak creditors’ protection and lack of
transparency, the importance of corporate governance increases manifold, especially,
with the mounting need for credible information. When the governance environment is
weak, managers are tempted to engage in value destroying actions and earnings
manipulation, which amplifies the overall risk perceived by creditors (Roberts and Yuan,
2006). Moreover, Leuz et al. (2003) document that managers’ in emerging markets tend
not to disclose true information about their firms. Therefore, investors face an impossible
task of accurately assessing the riskiness of firms to make an informed investment
decision.
The present study attempts to demonstrate how creditors employ ownership identity
to resolve information asymmetry in emerging markets. We contend that ownership
 Ownership identity and cost of debt in an emerging market 313

identity of firms offers relevant information, not present in the financial statements, about
the firm’s financial conditions and governance environment. Shareholders’ identity
determines the level of monitoring they exercise to reduce agency problems and improve
corporate governance, which subsequently influences the firm’s performance. The
divergence in characteristics, behaviours, objectives, strategies, and resources of different
types of shareholders affects their level of involvement in disciplining management and
improving corporate governance environment and mechanisms within the firm. Xu and
Wang (1999) show that the identity of owners shapes both the riskiness and performance
of the firm by influencing the prevailing level of agency problems. Therefore, creditors
can use information about ownership identity to better assess the true riskiness of the firm
and determine their required rate of return.
We examine the relationship between ownership identity and cost of debt in the
emerging market of Morocco, one of the most important financial markets in the
Middle East and North Africa (MENA); and our results can only be generalised to this
region. Compared to other countries in the region, Morocco distinguishes itself as one of
the few countries where economic and political reforms are being undertaken since the
mid-2000s. The allegiance for monarchy in the Kingdom has contributed to a more
assured political stability. Morocco is becoming an increasingly attractive destination for
international investors thanks to its significant potential growth in tourism, renewable
energy and export-oriented manufacturing industries, as well as to its relative cheap
labour and linguistic bonds with the Gulf region and Southern Europe (Country Watch
Incorporated, 2016). Aspiring to be Africa’s next superpower, Morocco has aggressively
exploited its geostrategic competitive advantage to become a potential business and
finance hub and a gateway to West Africa (Baker et al., 2017). Besides, the Kingdom’s
structural reforms and efforts to strengthen its economy have allowed the country to
escalate in the World Bank (2019) ‘Doing Business ranking from 128th position in 2009
to 60th position in 2018 among 190 economies. Aiming to be in the top 50 countries for
Doing Business by 2021, Morocco is currently ranked first in the Maghreb and second in
MENA region.
Casablanca Stock Exchange (CSE, hereafter), the official financial market of
Morocco and one of the oldest stock markets in Africa, was founded in 1929. Since its
inception, it has known several structural reforms. For instance, in April 2009, CSE
implemented new regulations to enhance market transparency, protect investors’ rights
and attract international investors. This promising initiative to tackle corporate
governance problems was necessary to the development of CSE, but the major challenge
remains the enforcement of these mechanisms (Jabbouri, 2016). Corporate governance is
relevant and central to resolving the actual problems faced by CSE. Moreover, given its
high potential for growth and low correlation with international markets, enhanced
transparency and governance practices would make of CSE an optimal destination for
global investors aspiring for growth and international diversification. In fact, CSE is the
key to develop the financial system and boost the economy in Morocco; therefore,
improving and strengthening its governance mechanisms should be the Moroccan
authorities’ highest priority.
This research focuses on two distinct types of investors: institutions and families, the
two dominant shareholder identities in the Moroccan stock market. Our study investigates
how institutional and family ownership affect cost of debt of Moroccan listed firms
314 I. Jabbouri et al.

under different economic conditions. More specifically, we address three main research
questions:
1 Does cost of debt change with the level of institutional ownership?
2 Does cost of debt change with the level of family ownership?
3 Do these prior relationships change under different economic conditions?
We explore these questions using data of all non-financial companies listed on the CSE
between 2004 and 2016. The study uses panel data analysis and pursues innovation by
examining the hypothesised relationships in the pre (2004–2007) and post (2009–2016)
crisis periods.
Given the severity of agency problems in CSE (Baker and Jabbouri, 2016, 2017) and
the fact that investors value better governed firms, understanding the role of ownership
identity, as an indicator of governance quality, and its impact on cost of debt, is
substantial for capital providers and investors trading in the CSE, among others.
However, despite the importance of debt as a primary source of external financing for
firms in Morocco and many other economies, scarce literature and empirical work on the
impact of ownership identity on cost of debt have been accomplished. Prior literature
has focused, predominantly, on the effects of ownership identity on equity valuation
(Claessens et al., 2002; Lins, 2003), while the effects of ownership identity on the welfare
of creditors has received relatively little attention. As a matter of fact, to our best
knowledge, this is the first study that examines the relationship between ownership
identity and cost of debt in Morocco or any other MENA market. Therefore, the
Moroccan market provides a unique testing environment that may bring new insights and
enrich the existing literature.
The remainder of this paper is structured as follows: Section 2 presents the literature
review and hypotheses development. Section 3 presents the methodology and empirical
procedure. The results are discussed in Section 4 and the robustness check is presented in
Section 5, while Section 6 concludes.

2 Literature review and hypotheses development

2.1 Institutional ownership

The size of institutions’ participation in capital markets all over the world made them one
of the main actors in these markets. A large body of literature has scrutinised the link
between firm governance and institutional ownership to come up with inconsistent
results. Institutional investors act according to two scenarios, either they draw long-term
benefits from actively monitoring the firms they invested in, or they can trade
information and gain short-term benefits (Kahn and Winton, 1998; Maug, 1998; Shleifer
and Vishny, 1986).
Several studies document positive effects of institutional investors on firms’ corporate
governance as agency problems are alleviated and shareholders’ value is maximised
(Demsetz, 1983; Hartzell and Starks, 2003; Jory et al., 2017; McConnell and Servaes,
1990; Nesbitt, 1994; Opler and Sokobin, 1997; Shleifer and Vishny, 1986; Smith, 1996).
For instance, Zheng and Zhong (2017) examined the effectiveness of California Public
Employees’ Retirement System (CalPERS) activism on improving operating performance
 Ownership identity and cost of debt in an emerging market 315

of companies targeted by its Focus List Program over the 1992–2009 period. They report
that, thanks to various governance measures, the operating performance of the Focus List
firms improved significantly after being targeted by CalPERS. Institutional investors use
a variety of tools to actively oversee their investees. The form of pro-active engagement
can range from writing an open letter to management or the board to requesting special
disclosure/audit to the firm and suing directors, if need be (Larcker and Tayan, 2011).
Moreover, the voting power granted by their large holdings facilitates corrective actions
such as the vote against antitakeover amendments or other undue managerial behaviour
that may negatively affect the firm’s value (Brickley et al., 1988; Gaspar et al., 2005).
Given their large stake at the company, institutional investors strive to discipline
managers to act for the firm’s best interest (Roberts and Yuan, 2010). The presence of
institutional owners makes managers more efficient and accountable, and reduces their
misbehaviours (Rajgopal and Venkatachalam, 1998). Hollowell (2006) and Solomon
(2007) provide empirical evidence from the USA and the UK, respectively, on how
institutional investors intervene on excessive perk packages offered to firms’ executives.
They document a negative relationship between institutional ownership and agency costs.
In fact, the role of institutional ownership in monitoring and disciplining management
cannot be fulfilled by smaller or less informed investors (Aggarwal et al., 2011; Black,
1992; Ferreira and Matos, 2008; Jarrell and Poulsen, 1987). Therefore, enhanced firm
performance and reduced agency risks thanks to institutional monitoring should be
associated with a lower cost of debt.
Furthermore, institutional ownership reinforces transparency by disseminating
information to reduce the information risk that results from managers’ attempts to hide or
miscommunicate important information (Chung et al., 2002). In the same line, there is
evidence that earning manipulation is reduced with the increase in the level of
institutional ownership (Chung et al., 2002). In addition, this latter is positively related to
the quality of accounting earnings (Rajgopal and Venkatachalam, 1998). By examining
non-financial firms listed on the Australian stock exchange, Koh (2003) documents that
institutional ownership is negatively related to the use of accounting accruals, a red
flag for earnings manipulation. Moreover, prior evidence suggests that institutions are
constantly requesting information from the firm, which is positively associated with the
accuracy of the information issued and negatively related to managerial optimism bias
(Ajinkya and Sengupta, 2005). Thus, institutional investors ensure better information
disclosure for other investors who would, otherwise, have been at an informational
disadvantage. Given that creditors value transparency, firms exhibiting a lower
information risk are expected to benefit from a lower cost of debt.
On the other hand, a significant body of literature reports the absence of monitoring
exercised by institutional investors (Faccio and Lasfer, 2000; Karpoff et al., 1996). The
free-rider problem (Admati et al., 1994; Black, 1990; Stapledon, 1996; Tasawar and
Nazir, 2019), high costs associated with monitoring (Tan and Keeper, 2008), short-term
investment horizon (Coffee, 1991; Bhide, 1993), as well as the fear of losing current or
potential business (Gillan and Starks, 2003) are among the arguments cited to explain
the absence of institutional monitoring. The free-rider problem emerges where all
shareholders enjoy the benefits of institutional monitoring at the expense of the few who
undertake expensive monitoring actions. Prior literature documents the prevalent nature
of this issue and reveals how institutional investors prefer to avoid monitoring in the
pursuit of their private benefits, which supports the passive monitoring hypothesis of
316 I. Jabbouri et al.

institutional investors (Black, 1990). For instance, Jory and Ngo (2016) suggest that
institutional investors that have business ties with firms, other than their investments, are
more likely to support a long-term working relationship with the firm’s executives.
Moreover, if the active institution aims to be effective and achieve positive results, it
has to collude with other institutions and shareholders to participate and cast the same
vote. To convince other shareholders, the institutional investor has to circulate lobby
documents and proxy solicitations. These actions come with significant costs; not
to mention the likelihood of losing business while spending time and resources on
shareholders’ activism (Tan and Keeper, 2008). In this context, Alimov (2018)
documents that Swedish public pension funds tend to sell their shares in underperforming
companies, instead of seeking to influence them through corporate governance
mechanisms.
Several studies investigated the limited cases where the US institutional investors
engage in monitoring. Their findings reveal that there is little or no evidence on the link
between monitoring and increase in firm value (Black, 1998; Gillan and Starks, 1998).
In a similar vein, Karpoff (2001) clearly states that: “Most evidence indicates that
shareholder activism can prompt small changes in target firms’ governance structures, but
has negligible impact on share values and earnings.”
Furthermore, the presence of institutional investors is not necessarily beneficial for
the firm and its creditors (Easterbrook, 1984; Fama and Miller, 1972; Jensen and
Meckling, 1976; Kalay, 1982; Myers, 1977). Agency costs of debt arise when creditors
face additional risk resulting from shareholders’ incentives to transfer wealth to
themselves by excessively paying dividends or by undertaking high-risk profile projects.
In this regard, Jensen and Meckling (1976) argue that diversified shareholders such as
institutional investors have incentives to expropriate creditors by undertaking high risk
projects, which results in high agency costs of debt. Aware of this conflict of interests,
creditors are more inclined to raise their required rate of return for firms controlled by
institutional investors to compensate for the additional risks triggered by potential agency
costs of debt (Bhojraj and Sengupta, 2003; Roberts and Yuan, 2010).
Presenting these contradicting arguments demonstrates that the extant literature has,
up to date, failed to achieve unanimity about the role that plays institutional ownership in
reducing agency problems, information asymmetries and the overall risk of the firm.
Hence, the impact of institutional ownership on cost of debt is abstruse. The first
hypothesis is stated as follows:
H1 Institutional ownership has a positive/negative impact on cost of debt.

2.2 Family ownership

Besides being one of the oldest business structures in the world and the most
enduring enterprises, family businesses represent between 60% and 90% of the global
non-governmental GDP (EFB, 2012). Furthermore, 85% of start-ups worldwide are
financed by family funds and more than 70% of business entities are family owned.
These family businesses create between 50% and 80% of all private sector jobs (EFB,
2012), which shows the eminence of family firms in the global economy.
In Morocco, family firms have unique characteristics with respect to their
management, organisation and operations. Some fundamental values that are implanted in
the management and organisation of these firms, such as the respect of elder, adoption of
 Ownership identity and cost of debt in an emerging market 317

a consultative management approach, and commitment to the family and business are
rooted in the Islamic and tribal traditions of the Kingdom. For instance, many families
continue to be involved in their first business even though it destroys value for their
holding, as it represents the reputation and the prominence of the family (Booz&co,
2009). Moreover, elder family members hold very influential positions (Abbasi and
Hollman, 1993). Succession usually goes to the older brother, which is widely accepted
among Muslim and Arab families. Additionally, disputes are kept and solved privately
reducing, hence, any negative impacts that may be signalled by internal conflicts
(Booz&co, 2009). The unique characteristics of Moroccan family firms make them an
interesting sample to investigate, which would add valuable insights to the corporate
finance literature.
Many studies were conducted to explore the different aspects of family firms, most of
which have focused on how family ownership can affect governance environment within
the firm. The positive impact of family ownership on firm governance was attributed to
several factors. The differences that family shareholders exhibit in comparison with other
shareholders can be summarised into a concern for the family along with the firm’s
reputation, survival, and succession to future generations. For instance, Anderson et al.
(2003) suggest that family owners’ long-term focus stems from their concern about
succession plan, together with their conviction that family and firm’s reputations are
closely related. This long-term focus along with their extensive knowledge of and
experience with the business enable them to make better strategic and operational
decisions that increase the firm value (Ahmed et al., 2016; Chrisman et al., 2004; Sirmon
and Hitt, 2003).
Prior to any investment decision, creditors analyse different aspects of the firm. The
long-term commitment of families, their concern about the family reputation and its
succession to future generations lower agency problems and boost firm performance. An
enhanced operational performance and an effective protection of the firm’s assets
improve its ability to service its future obligations, which, in turn, reduces creditors’
perceived risks. Both cash flows and other assets that could have been expropriated to
benefit managers can now be used to honour the firm’s commitments and serve as an
implicit collateral to be liquidated in case of default. Consequently, if family ownership is
associated with better governance, better monitoring of agents, low risks and improved
performance, it can be argued that it is, also, associated with a lower cost of debt, as
creditors perceive and incorporate a lower level of risk in their credit analysis.
The unique aspects of family owned firms do not only help to alleviate agency
problems of equity, but also those of debt. From debt-holders’ point of view, the loyalty
and dedication of the family ensure that the core objective is the long-term endurance of
the firm, which necessitates content shareholders as well as debt-holders. This attitude
helps establish trust between creditors and families, which would be translated afterward
into a lower required rate of return (Ang, 1992). Moreover, the low turnover of
executives in family-controlled firms entails that creditors, such as banks and other
financial institutions, will be dealing with the same people for a long period of time;
therefore, a personal and well-informed relationship can be developed (Anderson and
Reeb, 2003; Ellul and Pagano, 2006). The personal relationship would build trust
between the firm and its creditors, and the informed relationship would enhance
information disclosure, which should result in more auspicious and favourable lending
conditions (Hermalin and Weisbach, 2012; Sengupta, 1998).
318 I. Jabbouri et al.

Conversely, an opposing view suggests a negative relationship between family

ownership and firm governance (Perez-Gonzalez, 2006; Villalonga and Amit, 2006).
For instance, Morck et al. (2005) assert that due to their undiversified portfolio,
family-controlled firms can exhibit undue risk aversion. Hence, promising investment
opportunities can be foregone because of excessive risk aversion, which curtails the
firm’s growth and performance. In the same line, a different arguing strand suggests that
the high stake of the family in the firm can magnify the agency cost of debt, especially
when the family’s interests diverge from those of creditors. These owners may have a
strong motivation to invest in high risk-high expected return projects since the gains are
enjoyed by shareholders whereas losses are shared with creditors. This risk of adverse
selection deepens the agency cost of debt and contributes to wealth transfer from
creditors to shareholders. When taken into consideration, these potential problems
increase the risks perceived by creditors and result in more stringent credit terms. In the
same line, family members can entrench themselves to further their own interests at the
expense of outside investors. A prevailing example is the appointment of family members
even when they lack the necessary qualifications (Morck et al., 2005; Schulze et al.,
2003). The excessive pay of incompetent employees lowers the efficiency of the firm and
affects its ability to honour its obligations. Aware of these risks, creditors will adjust their
required rate of return when valuing firms with high family ownership (Aslan and
Kumar, 2009; Gomez-Mejia et al., 2001).
In light of the abovementioned arguments, it becomes clear that the literature is
inconclusive about the impact of family ownership on cost of debt. It is incapable of
demonstrating whether the benefits of the monitoring exercised by family ownership
outweigh its negative effects. Hence, it is interesting to explore this relationship in a new
market and search for new empirical evidence. Our hypothesis comes as follows:
H2 Family ownership has a positive/negative impact on cost of debt.

3 Methodology

3.1 Sampling
The objective of this study is to investigate the relationship between ownership identity
and cost of debt for Moroccan listed firms. The study uses data of all firms listed on the
CSE, with the exception of financial companies due to their special financial structures,
accounting methods and corporate governance (Berger et al., 1997). This yields a final
sample of 581 firm-year observations for the period between 2004 and 2016. The choice
of this time frame allows us to grasp the impact of recent changes affecting the CSE and
conduct a pre and post-crisis analysis. Data on ownership structures is obtained from the
CSE. DataStream and WorldScope were used to extract the remaining data needed (for
more details, see Appendix).

3.1.1 Data and variable construction

The following subsections present all the variables used in this study and their relevance.
As the two hypotheses imply, our dependent and independent variables are, respectively,
the cost of debt of the firm and ownership identity. To hedge against any biases resulting
from the difference in every firm’s unique characteristics, control variables are employed.
 Ownership identity and cost of debt in an emerging market 319

3.1.1.1 Dependent variable

• Cost of debt: We measure cost of debt (CoD) as the interest rate on the firm’s debt,
which is equal to interest expense net of capitalised interest for the year divided by
average short and long-term debt for the year (Farooq and Jabbouri, 2015; Francis
et al., 2005; Jabbouri and El Attar, 2017; Pittman and Fortin, 2004; Piot and
Missoniefr-Piera, 2007; Zhu, 2009). The cost of debt is the interest rate, which is
equal to interest expense divided by total interest-bearing liabilities.

3.1.1.2 Independent variable

• Ownership identity: Institutional (family) ownership will be measured by dividing
the number of shares held by institutions (family) by the total number of shares
outstanding (Krivogorsky, 2006; Xu and Wang, 1999).

3.1.1.3 Control variables

Mindful of the effects that firm specific characteristics may have on our results, we
include a number of relevant control variables:
• Leverage: Financial leverage (Leverage) has a significant impact on cost of debt
(Hubbard et al., 2002; Merton, 1974; Johnson, 2003). Similar to Roberts and Yuan
(2006), we measure Leverage using debt to equity ratio.
• Profitability: Generally, profitable firms are expected to have a lower default risk,
which reassures creditors to grant them loans at a lower cost. Similar to Elyasiani
et al. (2007), we measure profitability (Profit) using the return on assets ratio.
• Risk: In the financial literature, debt rating is used to measure a firm’s default risk;
however, this data is not available in the Moroccan market. Following Hamada
(1972) and Long and Malitz (1985), beta is used to capture the firm’s business risk
(Risk).
• Liquidity: We include liquidity (Liquidity) in the analysis because of its relationship
with cost of debt. Firms with better liquidity tend to have a lower cost of debt (Baker
and Bloom, 2013; DeAngelo et al., 2004; Khang and King, 2006). Current ratio is
used to account for the effect of firms’ liquidity on the cost of debt.
• Firm size: Compared to smaller firms, bigger firms have a larger asset-base that can
be used as a collateral, which reduces their riskiness and their cost of debt. To
measure firm size (FirmSize), we use the natural logarithm of total assets (Moh’d
et al., 1998; Roberts and Yuan, 2006; Titman and Wessels, 1988; Villalonga et al.,
2005).
• Growth opportunities: Growth opportunities (GrowthOp) are considered by scholars
as a main determinant of cost of debt (Moh’d et al., 1998; Myers, 1977; Rozeff,
1982; Villalonga et al., 2005). Growth firms are in a better position to honour their
debt obligations, so we expect their cost of debt to be lower than other firms. The
proxy used to account for the growth opportunities is the asset growth (Manos, 2003;
Moh’d et al., 1998).
320 I. Jabbouri et al.

We, also, include industry dummies (Industrydummies) and year dummies

(Yeardummies) in our model. Appendix provides a detailed description of all the
variables.

3.1.2 Descriptive statistics

Table 1 presents the descriptive statistics for cost of debt, institutional ownership
(InstitOwn) and family ownership (FamOwn) during our sampling period (2004–2016).
Table 1 Descriptive statistics for the dependent and independent variables

Panel A: descriptive statistics for the cost of debt

Variable Mean Median Standard deviation Minimum Maximum
Cost of debt 0.0661 0.0505 .0373 0.0213 0.1422
Panel B: descriptive statistics for the ownership identity
Variable Mean Median Standard deviation Minimum Maximum
InstitOwn 0.5472 0.4931 0.1761 0.0500 0.9998
FamOwn 0.3073 0.3724 0.2202 0.0624 0.9417

Table 2 presents the descriptive statistics, the correlation matrix and the variance
inflation factor (VIF) for our variables between 2004 and 2016. The correlation
analysis presented in Panel B of Table 2 shows a low pairwise correlation among
all the explanatory variables. The highest correlations are between firm size and
leverage (0.1621) and between profitability and growth opportunities (0.1377).
This analysis demonstrates that our sample is free from multicollinearity. The
results of the VIF presented in Panel C of Table 2 confirm the absence of
multicollinearity between explanatory variables as the highest VIF value does not
exceed 2.65.

3.2 Empirical procedure

In order to explore the effects of ownership identity on cost of debt, this research employs
a panel data analysis. The analysis produced two regressions: fixed and random effects
models. Haussmann test was used to select the most appropriate model. The basic model
takes the following form.
Equation (1) testing the relationship between ownership identity and cost of debt:
CoDit = α i + β1 InstitOwn + β 2 FamOwnit + β 3 Leverageit + β 4 Profit + β5 Riskit
+ β 6 Liquidityit + β 7 FirmSizeit + β8 GrowthOpit + β9 Industydummiesit (1)
+ β10Yeardummiesit + μit

In equation (1), the subscripts i and t represent the cross-sectional and the time
dimensions of our data respectively. The results of the analysis are reported in Tables 3
and 4.
 Panel A: descriptive statistics for the control variables

Table 2
Variable Mean Median Standard deviation Minimum Maximum
Leverage 22.35 24.77 7.05 0.07 0.83
Profit 13.69 9.23 4.67 –39.21 33.24
Risk 1.12 1.36 0.33 –1.72 2.65
Liquidity 1.15 0.94 0.36 0.15 3.04
FirmSize 13.76 11.01 6.84 8.32 15.61
GrowthOp 12.31 10.51 8.10 –22.34 27.13
Panel B: correlation matrix
Leverage Profitability Risk Liquidity FirmSize GrowthOp InstitOwn FamOwn
Leverage 1
Profitability .0312 1
Risk .0601 .0084 1
Liquidity .0093 .0114 1
FirmSize .1621 .0521 –.0079 .0612 1
GrowthOp –.0243 .1377 .0741 –.0031 .0406 1
InstitOwn .1102 .1510 –.0097 .0283 .2039 .1705 1
FamOwn .0912 .0721 –.0315 .0310 –.2046 .0041 –.1703 1
Panel C: variance inflation factor (VIF)
Variable VIF
InstitOwn 2.65
FamOwn 2.19
Ownership identity and cost of debt in an emerging market

FirmSize 1.52
Descriptive statistics and correlation matrix for the control variables

Leverage 1.19
Risk 1.16
Liquidity 1.12
Profitability 1.06
GrowthOp 1.06
Note: The sampling period is 2004–2016.
321
322 I. Jabbouri et al.

4 Results and discussion

Fixed and random effects regression models were used to assess the relationship between
ownership identity and cost of debt. Based on Hausman test, the fixed effects model
appears to be the most appropriate. The results reported in Table 3 are interesting and
intuitive. Our analysis reveals that institutional ownership is negatively related to cost of
debt at the level of 5%. This finding indicates that as institutional ownership increases,
cost of debt decreases. This result can be explained by the monitoring exercised by
institutional investors, which leads to improved corporate governance practices and lower
agency problems (Aggarwal et al., 2011; Solomon, 2007). The significant investment
made by institutional investors is the main incentive behind the switch from an arm’s
length approach to a more active role in monitoring management (Shleifer and Vishny,
1986). Moreover, given the relatively large holding of institutional investors and the
small size of CSE, an exit strategy through the sale of stocks would depress stock prices
and result into substantial losses. Thus, institutional investors are entailed to be active in
the process of monitoring and disciplining management. The monitoring of institutional
investors and the quality of corporate governance are expected to strengthen with an
increase of institutional ownership (Agrawal and Mandelker, 1990; Roberts and Yuan,
2010). Aware of the important role exercised by institutional investors in lessening the
risks of the firm and enhancing its performance, creditors will lower their required rate of
return.
Table 3 Relationship between ownership identity and cost of debt

COD Coef. t P > |t| Level of significance

Institutional –0.00052 –2.33 0.02 **
Family 0.00005 0.31 0.76
Leverage 0.00210 0.91 0.36
Profitability –0.22434 –2.97 0.00 ***
Risk 0.00476 1.30 0.19
Liquidity –0.01811 –1.35 0.18
FirmSize –0.97402 –2.16 0.03 **
GrowthOp –0.01054 –1.75 0.08 *
Industry dummies Yes
YearDummies Yes
Constant 0.00428 0.72 0.47
Number of observations 581
Adjusted R-squared 0.3451
Notes: Fixed effect model of the panel regression (2004–2016).
1% significance is indicated by ***, 5% significance is indicated by **, and 10%
significance is indicated by *.
Our analysis reveals an insignificant positive relationship between family ownership and
cost of debt. This result indicates that creditors do not perceive the presence of family
ownership as a governance mechanism that can reduce agency problems and enhance a
firm’s performance in the Moroccan market. Our result rejects previous findings reported
by Anderson et al. (2003), Chrisman et al. (2004) and Sirmon and Hitt (2003), who
 Ownership identity and cost of debt in an emerging market 323

suggest that the long-term orientation and commitment of families combined with their
concern about the firm’s reputation and its succession to future generations lower agency
problems and boost firm performance.

4.1 Pre and post-crisis analysis

Our main motivation behind a pre and post-crisis analysis is driven by the impact a
financial downturn may have on creditors and shareholders’ behaviours and managerial
investment decisions. Financial crises and macroeconomic fluctuations, in general, have a
substantial influence on the firm’s fundamentals and performance (Jabbouri and El Attar,
2018). The uncertainty caused by financial crises not only affects investors’ behaviour
and risk aversion, but also the attitude and concerns of managers. Investors’ risk aversion
and investment behaviour are likely to change during periods of economic downturns due
to the considerable losses, the high volatility, and the uncertainty that characterise
financial markets during such periods (Bucher-Koenen and Ziegelmeyer, 2011; Hudomiet
et al., 2011).
Furthermore, prior literature documents that insiders’ attempts and incentives to
expropriate outside investors intensify during financial crises (Johnson et al., 2000).
Kee-Hong and Seok Woo (2007) suggest that the weak performance recorded during
economic slumps and the desire to boost it is the main reasons behind insiders’
expropriation. Therefore, agency costs of equity and debt are expected to spread during
these periods, which would increase the firm’s riskiness and affect its performance.
Mindful of these potential conflicts, creditors are expected to incorporate these potential
risks in their credit analysis and increase their required rate of return.

Figure 1 Evolution of the MASI

To examine the impact of the financial crisis on the relationship between ownership
identity and cost of debt, we divide our sample into two sub-samples: pre and post-crisis.
The Federal Reserve Board of St. Louis (2009) and the BIS (2009) identify 2008 as the
year in which the ‘initial financial turmoil’ occurred in international markets, followed by
the period of sharp financial market deterioration. Figure 1 displays the decline that the
Moroccan All Share Index (MASI), the Moroccan main market index, experienced
during the 2008 financial crisis. The MASI was at 11,644 points at the end of 2016,
324 I. Jabbouri et al.

which is below its pre-crisis level of 12,694 points at the end of 2007. This means that by
the end of 2016, the Moroccan stock market has still not fully recovered from the crisis.
Similar to the initial analysis, equation (1) is re-estimated for both the pre-crisis
period (2004–2007) and the post–crisis period (2009–2016).

4.2 Results for the pre and post-crisis periods

The results presented in Table 4 are striking. The analysis shows an absence of a
significant relationship between institutional ownership and cost of debt during the
pre-crisis period. The absence of a significant relationship is also observed between
family ownership and cost of debt during the same period. However, during the
post-crisis period, our findings document a significant negative relationship between
institutional ownership and cost of debt at the 1% level and a significant positive
relationship between family ownership and cost of debt at the 5% level. These results
reveal that creditors perceive firms with institutional ownership as properly governed,
exhibiting, thus, low agency costs of equity and debt. Therefore, institutional ownership
is associated with a lower cost of debt. On the contrary, debt-holders view the presence of
family ownership as a factor that increases agency costs of equity and/or debt within the
firm. The weak corporate governance environment perceived within these firms increases
their risks; hence, it is associated with a higher cost of debt. Tunnelling and expropriating
firm’s resources by self-serving family owners are potential dishonest activities that
impair the credit worthiness of the firm and result in a higher cost of debt.
Furthermore, the prior analysis demonstrates that our results are more pronounced
during the post-crisis period, which is characterised by lacklustre market conditions.
We contend that the incentives of families to expropriate increase during economic
downturns. Bae et al. (2012) report similar results for Latin American and Asian firms
following the 2001 Argentinean economic crisis and the 1997 Asian financial crisis,
respectively. Bae et al. (2012) document that these firms suffered most expropriation
during recovery periods following the financial crisis where assets and profits were
tunnelled out of companies by controlling shareholders to elude the claims of creditors.
Thus, we argue that a significant drop in returns can prompt a change in the behaviour of
family owners who, in the pursuit of their private interests, would expropriate the firm’s
resources at the expense of outside investors. Creditors anticipate this shift in the major
shareholders’ behaviour that may adversely affect the riskiness of the firm and respond
proactively by reassessing the riskiness of the firm and requiring a higher return on their
investments (Jabbouri and Naili, 2019).
The deterioration of corporate governance practices following economic slumps
justifies the increased importance creditors attach to ownership identity during the
post-crisis period. Rajan and Zingales (1998) assert that both investors and regulators
tend to ignore corporate governance problems during good economic conditions
characterised by high returns and relatively lower investors’ risk aversion. This strand of
literature suggests that less attention will, always, be given to corporate governance
providing that investors earn what they were expecting (Mitton, 2002; Shleifer
and Vishny, 1997). Nevertheless, investors tend to be more alarmed about corporate
governance during and following economic slumps when markets fall and incentives for
expropriation upsurge (Jabbouri, 2016; Johnson et al., 2000).
 Ownership identity and cost of debt in an emerging market 325

Table 4 Relationship between ownership identity and cost of debt: pre-post-crisis analysis

COD Coef. t P > |t| Level of significance

Panel A: pre-crisis period (2004–2007)
Institutional –0.0001 –0.37 0.71
Family 0.0002 0.47 0.63
Leverage 0.0004 1.46 0.14
Profitability –0.018 –2.60 0.01 **
Risk 0.0014 1.62 0.10 *
Liquidity –0.0002 –0.01 0.99
FirmSize –0.1915 –2.66 0.00 ***
GrowthOp –0.0067 –1.64 0.10 *
Industry dummies Yes
YearDummies Yes
Constant 0.0029 0.84 0.40
Number of observations 146
Adjusted R-squared 0.2219
Panel B: post-crisis period (2009–2016)
Institutional –0.00036 2.59 0.01 ***
Family 0.00077 3.91 0.02 **
Leverage 0.04929 0.06 0.80
Profitability 0.57609 1.94 0.05 *
Risk 0.01054 1.75 0.08 *
Liquidity –0.00079 –0.68 0.50
FirmSize –0.97403 –2.16 0.03 **
GrowthOp –0.00127 1.34 0.18
Industry dummies Yes
YearDummies Yes
Constant 0.0897 1.44 0.151
Number of observations 385
Adjusted R-squared 0.4083
Notes: Fixed effect model of the panel regression.
1% significance is indicated by ***, 5% significance is indicated by **, and 10%
significance is indicated by *.
Our empirical evidence confirms the gravity of agency problems of equity in the
Moroccan market and pinpoints aspects in which emerging financial markets can
improve to promote market integrity, transparency and economic growth. Imperative
actions have to be taken to tackle these governance concerns, protect outside investors,
and alleviate insiders’ expropriation.
326 I. Jabbouri et al.

5 Robustness check

Anderson and Reeb (2003) argue that while the percentage of ownership in the firm
provides a measure of control, it may understate (overstate) the influence that the owner
may exert on the firm. In order to tackle the uncertainty associated with this measure, and
similar to Anderson and Reeb (2003), we create dummy variables that equal 1 (0) when
families (institutions) hold shares in the firm. The basic model takes the following form.
Equation (2) testing the relationship between ownership identity and cost of debt.
CoDit = α i + β1 InstitOwnit + β 2 FamOwnit + β 3 Leverageit + β 4 Profitit + β5 Riskit
+ β 6 Liquidityit + β 7 FirmSizeit + β8GrowthOpit + β9 Industydummiesit (2)
+ β10Yeardummiesit + μit

In equation (2), the subscripts i and t represent the cross-sectional and the time
dimensions of our data, respectively.
The objective of this section is to test whether the previous results are robust to
changes in the proxy of our independent variables. Similar to the initial analysis,
two regressions were produced: the fixed and random effects models, for the whole
sample period, pre and post-crisis periods. The results of the robustness check are
consistent with the previous findings in terms of significance and correlation between
ownership identity and cost of debt, which implies that the prior results are robust for a
change in the proxy.

6 Summary and conclusions

This study explores the importance of ownership identity, as an indicator of corporate

governance quality, in emerging markets. Specifically, this research examines the
relationship between ownership identity and cost of debt for non-financial firms listed on
CSE between 2004 and 2016. This study contributes to the corporate finance literature in
several ways. As a matter of fact, it is the first study that examines the relationship
between ownership identity and cost of debt in Morocco and the MENA region.
Investigating emerging markets characterised by different institutional and economic
settings would provide additional insights to the extant literature on corporate finance.
Lagoarde-Segot (2013) emphasises the importance of re-examining established economic
models in emerging and developing markets while taking into consideration their
particularities and special attributes. The author asserts that business models established
in developed countries serve as poor guides for practitioners and cannot be applied in an
unlike context. Moreover, this research pursues innovation by investigating the
relationship between ownership identity and cost of debt under various economic
conditions. In fact, pre and post-crisis analysis would not only help us gain a more
comprehensive understanding of how ownership identity affects cost of debt, but would
also provide valuable insights into conditions in which the market is sensitive to
governance mechanisms most.
The results of the study suggest that creditors perceive institutional ownership as a
governance mechanism that lowers agency cost of equity and debt within the firm. Given
that creditors incorporate the quality of corporate governance in determining their
 Ownership identity and cost of debt in an emerging market 327

required rate of return, institutional ownership is associated with lower risks and lower
cost of debt. This result is more pronounced during the post-crisis period – a period
characterised by lacklustre market conditions – which shows that the importance of
governance structures increases during economic downturns. Conversely, during the
pre-crisis period, our findings report the absence of a significant relationship between
cost of debt and ownership identity, be it family or institutional. Besides, a significant
positive relationship between family ownership and cost of debt during post-crisis period
is to report. We contend that a significant drop in returns drives family owners’ attempts
to expropriate the firm’s resources at the expense of outside investors during economic
downturns higher. Creditors view firms with family ownership as poorly governed, which
justifies their higher cost of debt. This outcome supports prior studies that report that
corporate governance becomes relevant for investors only when market performance
declines and firm’s resources become more vulnerable to insiders’ expropriation
(Jabbouri, 2016; Jabbouri and Farooq, 2015; Johnson et al., 2000; Rajan and Zingales,
1998; Shleifer and Vishny, 1997).
The results of this study have significant practical implications. Despite the measures
taken by the Moroccan authorities to improve the governance environment of CSE, our
findings document the existence of agency problems within Moroccan listed firms.
Additional measures are to be taken to reinforce country level governance mechanisms in
order to improve investors’ protection and restore the integrity of the local market. The
responsibility to promote adequate corporate governance practices and structures falls on
all market participants including, inter alia, managers, institutional investors, financial
analysts and regulators. These actors should scrutinise governance issues and promote
transparency and information disclosure to reduce agency problems. Furthermore, these
findings confirm the importance of strengthening country-level governance mechanisms
in CSE to lessen the expropriation by insiders and controlling shareholders (Farooq and
Jabbouri, 2015; Jabbouri and Naili, 2019). Ignoring these corporate governance failures
will lead to the dearth of capital and the inefficient allocation of resources in the
economy. Finally, this research invites firms with family ownership to revise and
improve their corporate governance practices in a way that maximises shareholders’
value.
Future research can incorporate a measure of the firm’s corporate governance quality
and variables related to loans such as the loan covenants and the quality of collaterals.
These variables have a significant impact on the riskiness of the firm and the quality of
the loan. Therefore, the impact these variables might have on cost of debt could enhance
the quality of our model and the pertinence of our results. The unavailability of this data
is the main reason behind excluding it in the current study. Another detail that deserves to
be profoundly investigated in future research is the effect of different types of
institutional investors on cost of debt. It is reported that institutions are not a homogenous
group (Agrawal and Mandelker, 1990; Gillan and Starks, 2000; Hartzell and Starks,
2003). Besides their unique legal and regulatory requirements, these institutions compete
on different grounds and maintain distinctive investment strategies and agenda, which
also, determine the skills of their employees and the quality and size of their resources
(Almazan et al., 2005; Almazan and Suarez, 2003; Bennett et al., 2003; Del Guercio,
1996; Falkenstein, 1996; Larcker et al., 2011). Therefore, different types of institutions,
with various investment policies and monitoring incentives, should have a distinct impact
on the firm’s cost of debt.
328 I. Jabbouri et al.

References
Abbasi, S.M. and Hollman, K.W. (1993) ‘Business success in the Middle East’, Management
Decision, Vol. 31, No. 1, pp.55–60.
Admati, A.R., Pfleiderer, P. and Zechner, J. (1994) ‘Large shareholder activism, risk sharing, and
financial market equilibrium’, Journal of Political Economy, Vol. 102, No. 6, pp.1097–1130.
Aggarwal, R., Berrill, J., Hutson, E. and Kearney, C. (2011) ‘What is a multinational corporation?
Classifying the degree of firm-level multinationality’, International Business Review, Vol. 20,
No. 2, pp.557–577.
Aggarwal, R., Berrill, J., Hutson, E. and Kearney, C. (2011) ‘What is a multinational corporation?
Classifying the degree of firm-level multinationality’, International Business Review, Vol. 20,
No. 2, pp.557–577.
Agrawal, A. and Mandelker, G.N. (1990) ‘Large shareholders and the monitoring of managers:
the case of antitakeover charter amendments’, Journal of Financial and Quantitative Analysis,
Vol. 25, No. 2, pp.143–161.
Ahmed, J.U., Imran, S.M., Musa, S.M. and Hasan, R. (2016) ‘Managing corporate governance
management of family firms in South Asia: evidence from Bangladesh and Sri Lanka’,
International Journal of Corporate Governance, Vol. 7, No. 1, pp.78–101.
Ajinkya, S.B. and Sengupta, P. (2005) ‘The association between outside directors, institutional
investors and the properties of management earnings forecasts’, Journal of Accounting
Research, Vol. 43, No. 3, pp.343–376.
Alimov, N. (2018) ‘Public pension funds as shareholders and firm performance’, International
Journal of Corporate Governance, Vol. 9, No. 4, pp.372–400.
Almazan, A. and Suarez, J. (2003) ‘Entrenchment and severance pay in optimal governance
structures’, The Journal of Finance, Vol. 58, No. 2, pp.519–547 [online] http://dx.doi.org/
10.1111/1540-6261.00536.
Almazan, A., Hartzell, J. and Starks, L. (2005) ‘Active institutional shareholders and costs of
monitoring: evidence from executive compensation’, Financial Management, Vol. 34, No. 4,
pp.5–34.
Anderson, R., Mansi, S. and Reeb, D. (2003) ‘Founding family ownership and the agency cost of
debt’, Journal of Financial Economics, Vol. 68, No. 2, pp.263–285.
Anderson, R.C. and Reeb, D.M. (2003) ‘Founding-family ownership and firm performance:
evidence from the S&P 500’, The Journal of Finance, Vol. 58, No. 3, pp.1301–1328.
Ang, J.S. (1992) ‘On the theory of finance for privately held firms’, Journal of Small Business
Finance, Vol. 1, No. 3, pp.185–203 [online] http://digitalcommons.pepperdine.edu/jef/vol1/
iss3/1.
Armstrong, C., Guay, W. and Weber, J. (2010) ‘The role of information and financial reporting in
corporate governance and debt contracting’, SSRN Electronic Journal [online] http://dx.doi.
org/10.2139/ssrn.1571138.
Aslan, H. and Kumar, P. (2009) ‘Controlling shareholders and the agency cost of debt: evidence
from syndicated loans’, in FIRS Prague Meetings and EFA 2009 Bergen Meetings.
Bae, K.H., Baek, J.S., Kang, J.K. and Liu, W.L. (2012) ‘Do controlling shareholders’ expropriation
incentives imply a link between corporate governance and firm value? Theory and evidence’,
Journal of Financial Economics, Vol. 105, No. 2, pp.412–435.
Baker, H.B., Jabbouri, I. and Dyaz, C. (2017) ‘Corporate finance practices in Morocco’,
Managerial Finance, Vol. 43, No. 8, pp.865–880 [online] https://doi.org/10.1108/MF-12-
2016-0359.
Baker, H.K. and Jabbouri, I. (2016) ‘How Moroccan managers view dividend policy’, Managerial
Finance, Vol. 42, No. 3, pp.270–288.
Baker, H.K. and Jabbouri, I. (2017) ‘How Moroccan institutional investors view dividend policy’,
Managerial Finance, Vol. 43, No. 12, pp.1332–1347.
 Ownership identity and cost of debt in an emerging market 329

Baker, S.R. and Bloom, N. (2013) Does Uncertainty Reduce Growth? Using Disasters as Natural
Experiments, No. w19475, National Bureau of Economic Research.
Beekes, W. and Brown, P. (2006) ‘Do better-governed Australian firms make more informative
disclosures?’, Journal of Business Finance & Accounting, Vol. 33, Nos. 3–4, pp.422–450
[online] http://dx.doi.org/10.1111/j.1468-5957.2006.00004.x.
Bennett, J.A., Sias, R.W. and Starks, L.T. (2003) ‘Greener pastures and the impact of dynamic
institutional preferences’, Review of Financial Studies, Vol. 16, No. 1, pp.1203–1238.
Berger, P.G., Ofek, E. and Yermack, D.L. (1997) ‘Managerial entrenchment and capital structure
decisions’, Journal of Finance, Vol. 52, No. 4, pp.1411–1438.
Bhide, V.M. (1993) ‘The hidden costs of stock market liquidity’, Journal of Financial Economics,
Vol. 34, No. 1, pp.31–51.
Bhojraj, S. and Sengupta, P. (2003) ‘Effect of corporate governance on bond ratings and yields:
the role of institutional investors and outside directors’, The Journal of Business, Vol. 76,
No. 3, pp.455–475.
BIS (2009) The International Financial Crisis: Timeline, Impact and Policy Responses in Asia and
the Pacific, BIS Papers No. 52, Bank for International Settlements.
Black, B.S. (1990) ‘Is corporate law trivial? A political and economic analysis’, Northwestern Law
Review, Vol. 84, No. 2, pp.542–597.
Black, B.S. (1992) ‘Agents watching agents: the promise of institutional investor voice’, UCLA
Law Review, Vol. 39, No. 4, pp.811–893.
Black, B.S. (1998) ‘Shareholder activism and corporate governance in the United States’,
in Newman, P. (Ed.): The New Palgrave Dictionary of Economics and the Law, MacMillan,
London.
Booz&co (2009) GCC Family Businesses Face New Challenges [online] http://arabic.bfba.com.bh/
Media/documents/pdf/GCC_Family.pdf (accessed 2 November 2018).
Brickley, J., Lease, R. and Smith, C. (1988) ‘Ownership structure and voting on antitakeover
amendments’, Journal of Financial Economics, Vol. 20, Nos. 1–2, pp.267–292.
Bucher-Koenen, T. and Ziegelmeyer, M. (2011) ‘Who lost the most? Financial literacy, cognitive
abilities, and the financial crisis’, SSRN Electronic Journal [online] http://dx.doi.org/10.2139/
ssrn.1738368.
Chrisman, J.J., Chua, J.H. and Litz, R.A. (2004) ‘Comparing the agency costs of family and
non-family firms: conceptual issues and exploratory evidence’, Entrepreneurship Theory and
Practice, Vol. 28, No. 4, pp.335–354.
Chung, R., Firth, M. and Kim, J.B. (2002) ‘Institutional monitoring and opportunistic earnings
management’, Journal of Corporate Finance, Vol. 8, No. 1, pp.29–48.
Claessens, S., Djankov, S., Fan, J. and Lang, L. (2002) ‘Disentangling the incentive and
entrenchment effects of large shareholdings’, Journal of Finance, Vol. 57, No. 6,
pp.2741–2771.
Coffee, J.C. (1991) ‘Liquidity versus control: the institutional investor as corporate monitor’,
Columbia Law Review, Vol. 91, No. 6, pp.1277–1368.
Conyon, M. and Schwalbach, J. (2000) ‘Executive compensation: evidence from the UK and
Germany’, Long Range Planning, Vol. 33, No. 4, pp.504–526.
Country Watch Incorporated (2016) Morocco: 2016 Country Review [online] http://libproxy.aui.
ma/login?url=http://search.ebscohost.com/login.aspx?direct=trueanddb=bthandAN=11749782
5andsite=eds-live (accessed 18 November 2017).
DeAngelo, H. and Rice, E. (1983) ‘Antitakeover charter amendments and stockholder wealth’,
Journal of Financial Economics, Vol. 11, Nos. 1–4, pp.329–359 [online] http://dx.doi.org/
10.1016/0304-405x(83)90016-8.
DeAngelo, H., DeAngelo, L. and Skinner, D.J. (2004) ‘Are dividends disappearing? Dividend
concentration and the consolidation of earnings’, Journal of Financial Economics, Vol. 72,
No. 3, pp.425–456.
330 I. Jabbouri et al.

Del Guercio, D. (1996) ‘The distorting effect of the prudent-man laws on institutional equity
investments’, Journal of Financial Economics, Vol. 40, No. 1, pp.31–62 [online] http://dx.doi.
org/10.1016/0304-405x(95)00841-2.
Demsetz, H. (1983) ‘Structure of ownership and the theory of the firm’, The J. L. & Econ., Vol. 26,
No. 2, p.375.
Easterbrook, F.H. (1984) ‘Two agency-cost explanations of dividends’, The American Economic
Review, Vol. 74, No. 4, pp.650–659.
Ellul, A. and Pagano, M. (2006) ‘IPO underpricing and after-market liquidity’, Review of Financial
Studies, Vol. 19, No. 2, pp.381–421.
Elyasiani, E., Deng, S.E. and Mao, C.X. (2007) ‘Diversification and the cost of debt of bank
holding companies’, Journal of Banking and Finance, Vol. 31, No. 8, pp.2453–2473.
European Family Businesses (EFB) (2012) EFB Position Paper: Family Business
Statistics, Google Scholar [online] http://www.europeanfamilybusinesses.eu/uploads/Modules/
Publications/pp—family-business-statisticsv2.pdf (accessed 26th March 2018).
Faccio, M. and Lasfer, M.A. (2000) ‘Do occupational pension funds monitor companies in which
they hold large stakes?’, Journal of Corporate Finance, Vol. 6, No. 1, pp.71–110.
Falkenstein, E. (1996) ‘Preferences for stock characteristics as revealed by mutual fund portfolio
holdings’, The Journal of Finance, Vol. 51, No. 1, p.111 [online] http://dx.doi.org/10.2307/
2329304.
Fama, E.F. and Miller, M.H. (1972) The Theory of Finance, Vol. 3, Dryden Press, Hinsdale, IL.
Farooq, O. and Jabbouri, I. (2015) ‘Ownership structure and portfolio performance: pre-and
post-crisis evidence from the Casablanca Stock Exchange’, Economics Bulletin, Vol. 35,
No. 3, pp.1661–1668.
Federal Reserve Board of St. Louis (2009) The Financial Crisis: A Timeline of Events and Policy
Actions.
Ferreira, M. and Matos, P. (2008) ‘The colors of investors’ money: the role of institutional
investors around the world’, Journal of Financial Economics, Vol. 88, No. 3, pp.499–533
[online] http://dx.doi.org/10.1016/j.jfineco.2007.07.003.
Fisher, L. (1959) ‘Determinants of risk premiums on corporate bonds’, Journal of Political
Economy, Vol. 67, No. 3, pp.217–237 [online] http://dx.doi.org/10.1086/258172.
Francis, J., Khurana, I. and Pereira, R. (2005) ‘Disclosure incentives and effects on cost of capital
around the world’, The Accounting Review, Vol. 80, No. 4, pp.1125–1162 [online]
http://dx.doi.org/10.2308/accr.2005.80.4.1125.
FT.com Middle East (n.d.) World Business, Finance and Political News from the Financial Times
[online] http://www.ft.com/home/middleeast (accessed 2 April 2016).
Gaspar, J-M., Massa, M. and Matos, P. (2005) ‘Shareholder investment horizons and the market for
corporate control’, Journal of Financial Economics, Vol. 76, No. 1, pp.135–165.
Gillan, S. and Starks, L. (1998) ‘A survey of shareholder activism: motivation and empirical
evidence’, Contemporary Finance Digest, Vol. 2, No. 3, pp.10–34.
Gillan, S. and Starks, L. (2000) ‘Corporate governance proposals and shareholder activism: the role
of institutional investors’, Journal of Financial Economics, Vol. 57, No. 2, pp.275–305.
Gillan, S. and Starks, L. (2003) ‘Institutional investors, corporate ownership, and corporate
governance: global perspectives’, in Sun, L. (Ed.): Ownership and Governance of Enterprises:
Recent Innovative Developments, Palgrave/MacMillan, Hampshire, England.
Gomez-Mejia, L.R., Nunez-Nickel, M. and Gutierrez, I. (2001) ‘The role of family ties in agency
contracts’, Academy of Management Journal, Vol. 44, No. 1, pp.81–95.
Hamada, R.S. (1972) ‘The effect of the firm’s capital structure on the systematic risk of common
stocks’, The Journal of Finance, Vol. 27, No. 2, pp.435–452.
Hartzell, J.C. and Starks, L.T. (2003) ‘Institutional investors and executive compensation’,
The Journal of Finance, Vol. 58, No. 6, pp.2351–2374.
 Ownership identity and cost of debt in an emerging market 331

Hermalin, B. and Weisbach, M. (2012) ‘Information disclosure and corporate governance’,

The Journal of Finance, Vol. 67, No. 1, pp.195–233.
Hollowell, B. (2006) ‘The effects of institutional investors in the retail industry’, Journal of
American Academy of Business, Vol. 9, No. 2, pp.27–32, Cambridge.
Horrigan, J. (1966) ‘The determination of long-term credit standing with financial ratios’, Journal
of Accounting Research, Vol. 4, p.44 [online] http://dx.doi.org/10.2307/2490168.
Hubbard, R.G., Kuttner, K.N. and Palia, D.N. (2002) ‘Are there bank effects in borrowers’ costs of
funds? Evidence from a matched sample of borrowers and banks’, The Journal of Business,
Vol. 75, No. 4, pp.559–581.
Hudomiet, P., Kézdi, G. and Willis, R.J. (2011) ‘Stock market crash and expectations of American
households’, Journal of Applied Econometrics, Vol. 26, No. 3, pp.393–415.
Jabbouri, I. (2016) ‘Determinants of corporate dividend policy in emerging markets: evidence from
MENA stock markets’, Research in International Business and Finance, Vol. 37, No. C,
pp.283–298.
Jabbouri, I. and El Attar, A. (2017) ‘Does a high dividend payout ratio signal proper corporate
governance or high agency cost of debt?’, Corporate Ownership & Control, Vol. 14, No. 2,
pp.51–58.
Jabbouri, I. and El Attar, A. (2018) ‘Dividend policy of firms listed on Casablanca Stock
Exchange: a panel data analysis’, International Journal of Business and Emerging Markets,
Vol. 10, No. 1, p.57 [online] http://dx.doi.org/10.1504/ijbem.2018.090507.
Jabbouri, I. and Farooq, O. (2015) ‘Ownership structure and portfolio performance: pre-and
post-crisis evidence from the Casablanca stock exchange’, Economics Bulletin, Vol. 35, No. 3,
pp.1661–1668.
Jabbouri, I. and Naili, M. (2019) ‘Does ownership concentration affect cost of debt? Evidence from
an emerging market’, Review of Behavioral Finance, forthcoming.
Jarrell, G.A. and Poulsen, A.B. (1987) ‘Shark repellents and stock prices: the effects of
antitakeover amendments since 1980’, Journal of Financial Economics, Vol. 19, No. 1,
pp.127–168.
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, No. 4, pp.305–360.
Johnson, S., Boone, P., Breach, A. and Friedman, E. (2000) ‘Corporate governance in the Asian
financial crisis’, Journal of Financial Economics, Vol. 58, No. 1, pp.141–186.
Johnson, S.A. (2003) ‘Debt maturity and the effects of growth opportunities and liquidity risk on
leverage’, Review of Financial Studies, Vol. 16, No. 1, pp.209–236.
Jory, S. and Ngo, T. (2016) ‘Institutional ownership and senior-level executives’ tenure’,
International Journal of Corporate Governance, Vol. 7, No. 2, pp.103–137.
Jory, S., Ngo, T. and Nguyen, K.H. (2017) ‘Institutional ownership and the spillover effects
of shareholder activism’, International Journal of Corporate Governance, Vol. 8, No. 2,
pp.128–155.
Kahn, C. and Winton, A. (1998) ‘Ownership structure, speculation, and shareholder intervention’,
The Journal of Finance, Vol. 53, No. 1, pp.99–129.
Kalay, A. (1982) ‘Stockholder-bondholder conflict and dividend constraints’, Journal of
Financial Economics, Vol. 10, No. 2, pp.211–233 [online] http://dx.doi.org/10.1016/0304-
405x(82)90014-9.
Kaplan, R. and Urwitz, G. (1979) ‘Statistical models of bond ratings: a methodological inquiry’,
The Journal of Business, Vol. 52, No. 2, p.231 [online] http://dx.doi.org/10.1086/296045.
Karpoff, J. (2001) ‘The impact of shareholder activism on target companies: a survey of empirical
findings’, SSRN Electronic Journal [online] http://dx.doi.org/10.2139/ssrn.885365.
Karpoff, J., Malatesta, P. and Walkling, R. (1996) ‘Corporate governance and shareholder
initiatives: empirical evidence’, Journal of Financial Economics, Vol. 42, No. 3, pp.365–395.
332 I. Jabbouri et al.

Kee-Hong, B. and Seok Woo, J. (2007) ‘The value-relevance of earnings and book value,
ownership strcuture, and business group affiliation: evidence from Korean business groups’,
Journal of Business Finance & Accounting, Vol. 34, No. 5, pp.740–766.
Khang, K. and King, T.H.D. (2006) ‘Does dividend policy relate to cross-sectional variation in
information asymmetry? Evidence from returns to insider trades’, Financial Management,
Vol. 35, No. 4, pp.71–94.
Koh, P.S. (2003) ‘On the association between institutional ownership and aggressive corporate
earnings management in Australia’, British Accounting Review, Vol. 35, No. 2, pp.105–128.
Krivogorsky, V. (2006) ‘Ownership, board structure, and performance in continental Europe’,
The International Journal of Accounting, Vol. 41, No. 2, pp.176–197 [online] http://dx.doi.
org/10.1016/j.intacc.2006.04.002.
Lagoarde-Segot, T. (2013) ‘Does stock market development always improve firm-level financing?
Evidence from Tunisia’, Research in International Business and Finance, Vol. 27, No. 1,
pp.183–208.
Larcker, D., Ormazabal, G. and Taylor, D. (2011) ‘The market reaction to corporate governance
regulation’, Journal of Financial Economics, Vol. 101, No. 2, pp.431–448.
Larcker, D.F. and Tayan, B. (2011) Corporate Governance Matters: A Closer Look at
Organizational Choices and Their Consequences, FT Press, Upper Saddle River, NJ.
Leuz, C., Nanda, D. and Wysocki, P.D. (2003) ‘Earnings management and investor protection: an
international comparison’, Journal of Financial Economics, Vol. 69, No. 3, pp.505–527.
Lins, K. (2003) ‘Equity ownership and firm value in emerging markets’, Journal of Financial and
Quantitative Analysis, Vol. 38, No. 1, pp.159–184.
Long, M.S. and Malitz, I.B. (1985) ‘Investment patterns and financial leverage’, in Corporate
Capital Structures in the United States, pp.325–352, University of Chicago Press, Chicago,
USA.
Manos, R. (2003) ‘Dividend policy and agency theory: evidence from Indian firms’, South Asia
Economic Journal, Vol. 4, No. 2, pp.275–300.
Maug, E. (1998) ‘Large shareholders as monitors: is there a trade-off between liquidity and
control?’, The Journal of Finance, Vol. 53, No. 1, pp.65–98.
McConnell, J.J. and Servaes, H. (1990) ‘Additional evidence on equity ownership and corporate
value’, Journal of Financial Economics, Vol. 27, No. 2, pp.595–612.
Merton, R.C. (1974) ‘On the pricing of corporate debt: the risk structure of interest rates’,
The Journal of Finance, Vol. 29, No. 2, pp.449–470.
MIDEAST WEEKAHEAD – Declining Morocco Stocks Face Frontier Risk (2013) [online]
http://www.reuters.com/article/morocco-stocks-msci-idUSL5N0E921I20130529 (accessed 1
April 2016).
Mishra, S. and Mohanty, P. (2018) ‘Does good governance lead to better financial performance?’,
International Journal of Corporate Governance, Vol. 9, No. 4, pp.462–480.
Mitton, T. (2002) ‘A cross-firm analysis of the impact of corporate governance on the East Asian
financial crisis’, Journal of Financial Economics, Vol. 64, No. 2, pp.215–241.
Moh’d, M.A., Perry, L.G. and Rimbey, J.N. (1998) ‘The impact of ownership structure on
corporate debt policy: a time-series cross-sectional analysis’, Financial Review, Vol. 33,
No. 3, pp.85–98.
Morck, R., Wolfenzon, D. and Yeung, B. (2005) ‘Corporate governance, economic retrench, and
growth’, Journal of Economic Literature, Vol. 63, No. 1, pp.655–720.
Myers, S.C. (1977) ‘Determinants of corporate borrowing’, Journal of Financial Economics,
Vol. 5, No. 2, pp.147–175.
Nesbitt, S.L. (1994) ‘Long-term rewards from shareholder activism: a study of the “CalPERS
effect”’, Journal of Applied Corporate Finance, Vol. 6, No. 4, pp.75–80.
 Ownership identity and cost of debt in an emerging market 333

Opler, T.C. and Sokobin, J. (1997) Does Coordinated Institutional Shareholder Activism Work?
An Analysis of the Activities of the Council of Institutional Investors, Fisher College of
Business, The Ohio State University.
Perez-Gonzalez, F. (2006) ‘Inherited control and firm performance’, American Economic Review,
Vol. 96, No. 5, pp.1559–1588.
Piot, C. and Missoniefr-Piera, F. (2007) ‘Corporate governance, audit quality and the cost of debt
financing of French listed companies’, Communication présentée au 28ème Congrès de
l’Association Francophone de Comptabilité, Poitiers.
Pittman, J.A. and Fortin, S. (2004) ‘Auditor choice and the cost of debt capital for newly public
firms’, Journal of Accounting and Economics, Vol. 37, No. 1, pp.113–136.
Rajan, R.G. and Zingales, L. (1998) ‘Which capitalism? Lessons from the East Asian crisis’,
Journal of Applied Corporate Finance, Vol. 11, No. 3, pp.40–48.
Rajgopal, S. and Venkatachalam, M. (1998) The Association Between Earnings Sensitivity
Measures and Market Determined Risk Exposures: The Case of Oil Price Risk for Petroleum
Refiners, No. 145428, SSRN.
Roberts, G. and Yuan, L.E. (2006) The Role of Institutional Ownership in Corporate Governance:
A New Perspective, Working Paper, Schulich School of Business, York University.
Roberts, G. and Yuan, L.E. (2010) ‘Does institutional ownership affect the cost of bank
borrowing?’, Journal of Economics and Business, Vol. 62, No. 6, pp.604–626.
Rozeff, M.S. (1982) ‘Growth, beta and agency costs as determinants of dividend payout ratios’,
Journal of financial Research, Vol. 5, No. 3, pp.249–259.
Schulze, W.S., Lubatkin, M.H. and Dino, R. (2003) ‘Toward a theory of agency and altruism in
family firms’, Journal of Business Venturing, Vol. 18, No. 1, pp.473–490.
Sengupta, P. (1998) ‘Corporate disclosure quality and the cost of debt’, The Accounting Review,
Vol. 73, No. 4, pp.459–474 [online] http://www.jstor.org/stable/248186.
Shleifer, A. and Vishny, R.W. (1986) ‘Large shareholders and corporate control’, The Journal of
Political Economy, Vol. 94, No. 3, pp.461–488.
Shleifer, A. and Vishny, R.W. (1997) ‘A survey of corporate governance’, The Journal of Finance,
Vol. 52, No. 2, pp.737–783.
Sirmon, D.G. and Hitt, M.A. (2003) ‘Managing resources: linking unique resources, management,
and wealth creation in family firms’, Entrepreneurship Theory and Practice, Vol. 27, No. 4,
pp.339–358.
Smith, M.P. (1996) ‘Shareholder activism by institutional investors: evidence from CalPERS’,
The Journal of Finance, Vol. 51, No. 1, pp.227–252.
Solomon, J.F. (2007) Corporate Governance and Accountability, 2nd ed., John Wiley and Sons,
Ltd., Chichester, UK.
Stapledon, G. (1996) ‘Regulation of corporate governance: will it improve corporate
performance?’, Australian Accounting Review, Vol. 6, pp.11–15, DOI: 10.1111/j.1835-2561.
1996.tb00011.x.
Tan, A.W. and Keeper, T. (2008) Institutional Investors and Corporate Governance:
A New Zealand Perspective, Centre for Accounting, Governance and Taxation Research,
School of Accounting and Commercial Law, Victoria University of Wellington, Wellington.
Tasawar, A. and Nazir, M.S. (2019) ‘The nexus between effective corporate monitoring and CEO
compensation’, International Journal of Corporate Governance, Vol. 10, No. 1, pp.81–94.
Titman, S. and Wessels, R. (1988) ‘The determinants of capital structure choice’, The Journal of
Finance, Vol. 43, No. 1, pp.1–19.
Villalonga, B. and Amit, R. (2006) ‘How do family ownership, control and management affect firm
value?’, Journal of Financial Economics, Vol. 80, No. 2, pp.385–417.
Villalonga, B. and McGahan, A.M. (2005) ‘The choice among acquisitions, alliances, and
divestitures’, Strategic Management Journal, Vol. 26, No. 13, pp.1183–1208.
334 I. Jabbouri et al.

Weinstein, M. (1981) ‘The systematic risk of corporate bonds’, The Journal of Financial and
Quantitative Analysis, Vol. 16, No. 3, p.257 [online] http://dx.doi.org/10.2307/2330238.
World Bank (2019) Doing Business 2019: Training for Reform, Economy Profile of
Morocco, World Bank, Washington DC [online] http://www.doingbusiness.org/content/dam/
doingBusiness/country/m/morocco/MAR.pdf (accessed 3 March).
Xu, X. and Wang, Y. (1999) ‘Ownership structure and corporate governance in Chinese stock
companies’, China Economic Review, Vol. 10, No. 1, pp.75–98.
Zheng, S.X. and Zhong, K. (2017) ‘Does shareholder activism improve operating performance of
targeted companies: a re-examination of CalPERS’ focus list program’, International Journal
of Corporate Governance, Vol. 8, No. 2, pp.156–173.
Zhu, F. (2009) Cost of Capital and Corporate Governance: International Evidence, Working
Paper, University of Wisconsin.

Appendix

Variables’ measures and sources

Table A1 Variables’ measurement and source

Variable Measurement Source

Cost of debt Interest expense over interest bearing DataStream
liability
Institutional ownership Percentage of stake held by Casablanca Stock Exchange
institutional investors
Family ownership Percentage of stake held by families Casablanca Stock Exchange
Leverage Debt to equity ratio WorldScope
Profit Return on asset ratio (ROA) DataStream
Risk Beta DataStream
Liquidity Current ratio DataStream
Firm size Natural log of total assets: DataStream
Ln (total assets)
Growth opportunities Asset growth WorldScope