Tema 1 Hermassi2015 CorpGovernance Ownership CapStruct

THE EFFECT OF CORPORATE GOVERNANCE AND OWNERSHIP
STRUCTURE ON CAPITAL STRUCTURE : EMPIRICAL EVIDENCE FROM

CANADA
Nadia Hermassi, Fodil Adjaoud, Chaker Aloui
Association de Recherches et Publications en Management | « Gestion 2000 »

© Association de Recherches et Publications en Management | Téléchargé le 23/06/2021 sur www.cairn.info (IP: 209.45.91.40)
2015/6 Volume 32 | pages 95 à 114
ISSN 0773-0543
Article disponible en ligne à l'adresse :
--------------------------------------------------------------------------------------------------------------------
https://www.cairn.info/revue-gestion-2000-2015-6-page-95.htm
--------------------------------------------------------------------------------------------------------------------
Distribution électronique Cairn.info pour Association de Recherches et Publications en Management.

© Association de Recherches et Publications en Management. Tous droits réservés pour tous pays.
La reproduction ou représentation de cet article, notamment par photocopie, n'est autorisée que dans les
limites des conditions générales d'utilisation du site ou, le cas échéant, des conditions générales de la
licence souscrite par votre établissement. Toute autre reproduction ou représentation, en tout ou partie,
sous quelque forme et de quelque manière que ce soit, est interdite sauf accord préalable et écrit de
l'éditeur, en dehors des cas prévus par la législation en vigueur en France. Il est précisé que son stockage
dans une base de données est également interdit.
Powered by TCPDF (www.tcpdf.org)

Nadia HERMASSI
Faculty of Management and Economic
Sciences, University El Manar of Tunis
(Tunisia)
Fodil ADJAOUD
Telfer School of Management,
University of Ottawa (Canada).
Chaker ALOUI
Higher Institute of Accounting and
Business, University of Manouba (Tunisia).
The Effect of Corporate

Governance and Ownership
Structure on Capital Structure:
Empirical Evidence from Canada
I n their pioneering study on agency theory, Berle and Means (1932) advanced the
claim that there is a large gap between ownership and control in large companies.
Then, Jensen and Meckling (1976) explained that managers don’t always work towards
maximizing shareholders’ wealth because they tend to waste resources for their
personal interests.
Jensen (1986) affirmed that debt may lows the company to ensure the man-
attenuate the conflict between manag- agers’ efficiency.
ers and shareholders in companies
with higher free cash flows. He argued According to Boodhoo (2009), with
that managers have to pay debt with excessive debt, creditors may have the
the available free cash flows rather dominant role in the decision making
than investing in unprofitable or nega- of the firm. Such a situation may lead
tive net present value projects. to a conflict between shareholders and
creditors because they don’t share the
Indeed, Pinegar and Wilbricht (1989) same ideas. Creditors look for debt
found that the principal-agent problem payments, while shareholders seek
can be resolved by capital structure dividend distribution.
and, more specifically, by increasing
the level of debt. Similarly, Lubatkin The conflict between shareholders,
and Chatterjee (1994) reported that managers and creditors leads us to
the increase in debt to equity ratio al- study the relationship between cor-
95
Gestion 2000 6 novembre - décembre 2015
porate governance and capital struc- Ben Amar, 2010). Second, in the US
ture. Moreover, corporate governance there are restrictions on bank owner-
could explain leverage for many rea- ship by American firms, but in Can-
sons. Studies have shown that some ada, banks are permitted to participate
financial decisions, such as dividend in the capital of companies of which
policy, could be mitigated by lever- they are creditors in order to protect
age. Indeed, Adjaoud and Ben Amar their interests (Baxter, 1968). Finally,
(2010) revealed that dividend policy Canadian banks are allowed to oper-
and governance are substitutes in the ate across the whole country without
sense that when governance is of good regard to provincial boundaries. Such
quality, managers will pay out divi- regulations helped Canadian banks
dends and borrow instead, increasing to offer a lower cost of debt which
the debt ratio. encourages companies to depend on
debt rather than equity financing.
In addition, we can speculate that firms
with better quality governance will bor- Given the above arguments, this paper
row more because the risk could be aims to help reveal the nature of the
perceived as low for lenders. relationship between corporate gov-
ernance and capital structure and to
The present article aims to evaluate the improve the existent literature about
effect of corporate governance and financing decisions. In this paper, we
ownership structure in Canadian com- would like to evaluate the effect of both
panies. Our choice of Canada is justi- governance mechanisms and owner-
fied by the fact that this country offers ship structure on capital structure. To
a perfect field of investigation since it the best of our knowledge, no research
has the same legal and regulatory in- on this topic has been done on Cana-
stitutions as the United States (Buckley, dian firms. The only study done in Can-
1997). The two countries also have the ada, that of King and Santor (2007),
same English common law, the same has used the effect of ownership struc-
level of shareholder protection and ture on capital structure and did not
comparable levels of financial disclo- consider governance mechanisms.
sure (La Porta et al., 1998 and 2000;
and King and Santor, 2007). At the The rest of this paper is organized as
same time, Canada differs from the US follows: section 2 presents an overview
concerning ownership structure and of the literature on corporate gover-
banking regulations. First, Canada has nance, ownership structure and capi-
a high level of ownership concentra- tal structure. Section 3 describes the
tion, especially family ownership (King methodology. Section 4 presents the
and Santor, 2007 and Adjaoud and descriptive statistics. Section 5 reports
96
The Effect of Corporate Governance and Ownership Structure on Capital Structure:
econometric results and section 6 con- positive relationship between board

cludes the paper. size and leverage. This result is due to
the difficulty of reaching a consensus
on the decision making because of
Literature review the high number of board members.
The findings on board size are contra-
dictory and no consensus is reached.
In this section, we present the findings
Therefore, we formulate the following
of previous research done on the re-
hypothesis:
lationship between corporate gover-
nance, ownership structure and capital
H1: There is a significant relationship
structure.
between board size and capital struc-
ture.
Governance and capital
structure Several studies confirmed the effec-
tiveness of independent directors in
Several theoretical and empirical stu- controlling managers. Wen et al.
dies have been devoted to the impact (2002) documented a significant and
of governance mechanisms on the negative relationship between the
capital structure of a company. Accor- percentage of independent directors
ding to the literature, the main mecha- and financial leverage.
nisms of governance recognized to
have an effect on funding decisions This result is due to the ability of inde-
are the following: board size, board pendent directors in monitoring mana-
independence, manager duality, exe- gers and encouraging them to adopt
cutive compensation and executive low leverages to achieve better per-
entrenchment. However, the results are formance. However, many studies
varied and inconclusive. came to a contradictory conclusion.
For example, Jensen (1986), Berger
Berger et al. (1997) found that firms et al. (1997) and Ur-Rehman et al.
with a large board have a low debt. (2010) have shown that firms with high
They explained this result by the fact percentages of independent directors
that a large board is able to exert use more debt. The positive relation-
strong pressure on managers to opt ship between board independence
for low debt in order to increase the and leverage implies that independent
performance of the company. Howe- directors can improve the credibility of
ver, Jensen (1986), Wen et al. (2002) the company and its ability to borrow.
and Ur-Rehman et al. (2010) contra- Consequently, we retain the following
dicted this finding and have shown a hypothesis:
97
H2: Independent directors affect signi- Finally, the literature identified mana-
ficantly firm’s leverage. ger compensation as a governance
mechanism which has an effect on
Studies on the relationship between capital structure. Empirical results
CEO duality and capital structure have show conflicting conclusions. For ins-
led to a variety of results. Fama and tance, Jensen and Meckling (1976)
Jensen (1983) stated that the separa- and Berger et al. (1997) showed a
tion between the roles of CEO and positive association between executive
board chairman influences financing compensation and capital structure of
decision, but the relationship is not the company. However, Wen et al.
statistically significant. According to (2002) found a negative correlation.
Fosberg (2004), firms that separate Consequently, we retain the following
management and control have a high hypothesis:
debt to equity ratio. Hence, we formu-
late the following hypothesis: H5: There is a significant association
between manager compensation and
H3: CEO duality is significantly asso- capital structure.
ciated with leverage.
Ownership structure and
There is another mechanism of corpo-
capital structure
rate governance which may affect the
capital structure and this is manager
entrenchment. Berger et al., (1997) Several studies have explored the rela-
and Wen et al., (2002) found a ne- tionship between ownership structure
gative relationship between leverage and corporate performance. However,
and CEO entrenchment. Entrenched there has been relatively little research
managers prefer low leverage in order that looks at the relationship between
to reduce performance pressure asso- ownership structure and capital struc-
ciated with high debt. Kayhan (2003), ture. According to the literature, owner-
Litov (2005) reported the same result. ship structure has an important effect
However, Bertrand and Mullainathan on firm leverage. Nevertheless, empiri-
(2003) documented a positive rela- cal results are inconclusive.
tionship between manager entrench-
ment and leverage. The results are not Numerous studies have tested the im-
conclusive. Therefore, our following pact of ownership concentration on
hypothesis is: capital structure. Berger et al. (1997)
found high leverage in companies ha-
H4: Entrenched managers pursue low ving blockholders. That means a posi-
leverage. tive relationship should exist between
98
the ownership concentration and leve- H6: Ownership structure has a signifi-
rage. Cheng et al. (2005), Driffield et cant impact on capital structure.
al. (2005) reached the same conclu-
sion. However, other studies have a The review of previous studies dealing
contradictory opinion on the relation- with the relationship between corpo-
ship between ownership concentration rate governance mechanisms and ca-
and leverage. Brailsford et al. (2002), pital structure leads to a striking conclu-
Claessens et al. (2002) and Reuter sion: the results are contradictory and
(2009) confirmed the negative effect of no consensus is reached. Therefore
ownership concentration on company additional studies are needed in order
leverage. to shed more light on this crucial topic
of corporate finance.
Concerning the effect of family owner-
ship, Boubakari and Feudjo (2010)
demonstrated that family firms avoid Methodology
external financing in order to keep ex-
clusive control and to transmit the firm Sample Selection
to future generations.
We did not use a specific database
Therefore, family ownership may be to collect our data. Consequently we
associated negatively with capital needed to start with a pre-determined
structure. A few studies, such as Harijo- sample of Canadian firms listed on the
no and Tanewki (2004), have reached Toronto Stock Exchange Index, more
contradictory conclusion. precisely TSX/S&P Composite Index,
during the period 2008-2011. After
Deesomsak et al. (2004) stated that eliminating companies with missing
government involvement in the owner- data and financial companies (be-
ship structure, allows better access to cause they have a different financial
the capital market as well as creating structure), our final sample consists of
an opportunity to borrow at favorable 117 Canadian companies operating
rates guaranteed by the government. in energy, industrial, materials, consu-
mer staples, consumer discretionary,
The institutional ownership allows the utilities, telecommunications services,
company to have a better reputation health care, and information technolo-
and, therefore, a greater capacity to gy. Financial information, governance
borrow (Berger et al., 2004). mechanisms and ownership structure
have been gathered from company
Therefore, we formulate the following annual reports and management
hypothesis: proxy circulars.
99
Variable Definitions dent directors divided by the total

number of directors.
• CEO Duality (CEO_Dual): This is
Table 1 presents the description of dif-
a binary variable equal to 1 if the
ferent variables.
CEO is also the chairman of the
Dependent variable board and 0 otherwise.
• CEO Entrenchment (CEO_Entr): This
variable refers to the CEO tenure or
Several recent studies have retained the number of years of the executive
Book Leverage or Market Leverage as CEO.
or both as variables to measure debt • CEO Compensation (CEO_Comp):
ratio (Faccio et al., 2010 and Jiraporn, This is the total annual compensation
2012). Other ratios such as Debt to received by the CEO as declared in
Equity and Long term Debt to Equity the annual report.
were also used For this paper, we will
adopt Book Leverage (Book_Lev) and
Ownership structure :
other ratios will be used when robust-
Canadian firms are characterized by
ness are performed.
ownership concentration and parti-
cularly by the dominance of family
Independent variables
ownership (Attig, 2003; Klein et al.,
2005 and King and Santor, 2007). In
For our empirical research, we chose our research, we will follow the work
the following independent variables re- of Attig (2003) for the definition of va-
lated to corporate governance mecha- riables of ownership structure. We will
nisms and ownership structure. classify the firms in our sample accor-
ding to whether they have a concen-
Governance mechanisms : trated or dispersed ownership using
Governance mechanisms that may the rule of 10% cut-off. This means that
have an effect on capital structure if the last shareholder controls 10%
as demonstrated by the literature are or more of the voting rights, then the
board size, board independence, company is not classified as dispersed
CEO duality, CEO entrenchment and and, therefore, it is classified accor-
CEO compensation. They are measu- ding to the owner’s identity: family,
red as follows: institution / company or government.
• Board Size (Board_Size): This is In other words, if a firm has a sharehol-
the total number of directors on the der with 10% or more of voting rights,
board. then it is classified as family, institutio-
• Board Independence (Board_In- nal or governmental company. If a firm
dep): It is the number of indepen- has no owner controlling 10% or more
100
of voting rights, it is classified as dis- and French (2001), there are four firm
persed. In our research, we will focus characteristics that may affect capital
on family (Fam), institutional (Instit) and structure, namely: profitability, growth
governmental (Gov) ownership, for opportunities, assets tangibility and
which we will assign binary variables firm size.
as defined in Table 1.
Profitability (ROA): According to the
Control variables pecking order theory (Myers, 1984 and
Myers and Majluf, 1984), companies
According to Rajan and Zingales prefer internal financing rather than ex-
(1995), Booth et al. (2001) and Fama ternal. Consequently, the most profitable
Table 1 : Variables Description
Variable Abbreviation Description
Dependent Variables
Book Leverage Book_Lev Total Debts / Total Assets
Independent Variables
Governance Mechanisms
Board Size Board_Size Total Number of Directors
Board Independence Board_Indep Number of Independent Directors / Total Number of
Directors
CEO Duality CEO_Dual Dummy Variable equal to 1 if CEO is also Board
Chairman and 0 otherwise
CEO Entrenchment CEO_Entr Number of years of the Executive as CEO
CEO Compensation CEO_Comp Logarithm of Total CEO Compensation
Ownership Structure
Family Ownership Fam Dummy Variable equal to 1 if Family ownership and
0 otherwise
Institutional Ownership Instit Dummy Variable equal to 1 if Institutional ownership
and 0 otherwise
Governmental Ownership Gov Dummy Variable equal to 1 if Governmental ownership
and 0 otherwise
Control Variables
Profitability ROA Net Income / Total Assets
Growth Opportunity Tobin_Q (Total Debt + Market Equity)/Total Assets
Assets Tangibility Assets_Tang Fixed Assets/Total Assets
Firm Size Size Logarithm of Total Assets
101
Firm Size (Size): Large firms have more diversified portfolios and therefore their
companies finance their investments with Assets Tangibility (Assets_Tang): The
profits are less volatile. The literature suggests a positive relationship between
profits (retained earnings) instead of assets can be used as collateral. Thus,
debt. Profitable companies are expected
firm size and leverage. Indeed, large companies companies withcredit
have better a high percentage
access than of
to have lower debt ratio (Friend and fixed assets may have high debt. Re-
Firm Size (Size): Large firms have more diversified portfolios and therefore their
small businesses
Lang, 1988 and because
Titman and theyWessels,
are less exposed to bankruptcy
uter (2009) found risk
a high(Faccio et
leverage in
1988).
profits Previous studies agree
are less volatile. on the suggests
The literature firmsa with morerelationship
positive assets. between
al., 2010).
negative relationship between profitabil-
ityfirm
andsize and leverage.
leverage Indeed, large companies
(Reuter, 2009). have(Size):
Firm Size better Large
credit firms
access than
have more
small businesses because they are less exposed diversified portfoliosriskand
to bankruptcy therefore
(Faccio et
nd therefore their Opportunity (Tobin_Q): The lit-
Growth their profits are less volatile. The litera-
2.3.
al.,Model
erature 2010).
suggests a negative relationship ture suggests a positive relationship be-
ionship between
between growth opportunities and capi- tween firm size and leverage. Indeed,
edit access
talthan
structure. This means that companies large companies have better credit
with large growth opportunities have access than small businesses because
y risk (Faccio et
lower
To2.3. debt ratio.
investigate
Model The best variable to esti-
the relationship between corporatethey are less exposed
governance to bankruptcy
mechanisms,
mate the growth opportunity is Tobin’s Q risk (Faccio et al., 2010).
ownership
(Reuter, structure
2009 and capital
and Faccio structure, we adopt the following models:
et al., 2010).
Model
To investigate the relationship between corporate governance mechanisms,
Toownership
investigate the relationship
structure between
and capital corporate
structure, we adoptgovernance mechanisms,
the following models: owner-
ship structure and capital structure, we adopt the following models:
ce mechanisms,
g models:
With:
i = 1 ... N and t = 1 … T
With:
N:With:
Number of companies and T: Estimation period;
i = 1 ... N and t = 1 … T
N:i :=Number
Error of companies and T: Estimation period;
term;
1 ... N and t = 1 … T
: Error term;
N:…Number of companies
: Coefficients of and T: Estimation
of exogenous
exogenous period;
variables;
variables;
: Constant
Constant model.
model.
: Error term;
14
… : 102
Coefficients of exogenous variables;
3. DESCRIPTIVE STATISTICS
Descriptive statistics Strongly indebted firms achieved a

significantly higher mean of CEO en-
trenchment and CEO compensation,
Table 2 summarizes our descriptive respectively 9.479 (median 7) and
statistics. Our sample consists of 468 15.44 (median 15.214). These results
firm year observations (234 strongly implicate a positive effect of managers’
indebted firms and 234 weakly in- entrenchment and managers’ compen-
debted firms). The observation of the sation on capital structure.
variable Book Leverage allows us to
conclude that debt represent 47% of
Furthermore, the investigation of de-
the companies’ assets. The mean size
scriptive statistics relating to the owner-
of the board is 10.269 (median 10).
ship structure of Canadian companies
demonstrates the dominance of family
This result is similar to the findings of ownership (30.3%) against institution-
Lipton and Lorsch (1992) who argued al ownership (28%) and governmental
that the optimal size of the board must ownership (2.1%). The mean of fam-
be between 8 and 10 to have a diver- ily ownership is 0.397 in the strongly
sity of skills and expertise, leading to indebted companies and 0.209 in the
better decision making. Also, strongly weakly indebted companies. The mean
indebted companies achieved signifi- difference test is significant, so we can
cantly higher board size with an av- speculate that family ownership is
erage of 11.308 (median 11), while positively associated with higher debt.
weakly indebted companies achieved In contrast, weakly indebted compa-
an average of 9.231 (median 9). This nies achieved significantly higher in-
result suggests that companies with stitutional ownership with a mean of
larger board size are associated with 0.368, while in the strongly indebted
higher leverage. companies the average of institutional
ownership is 0.192.
Moreover, we note that the mean num-
ber of independent directors on the Table 2 on next page also shows the
board represents two thirds of the total mean difference tests for the control
number of directors (76.9%), Indeed, variables. Only firm size reveals a sig-
the low mean (0.201) of CEO duality nificant result. As expected, larger firms
shows that in the majority of compa- are more indebted since they have a low
nies, there is a separation between the bankruptcy risk and a better credit ac-
roles of CEO and board chairman. cess. Strongly indebted firms achieved a
However, mean differences tests for mean size of 22.487 (median 22.387)
board independence and CEO duality and weakly indebted firms achieved a
show no significant results. mean size of 21.531 (21.460).
103
Table 2: Descriptive Statistics on the relationship between corporate governance mechanisms, ownership structure and capital struc-
ture of Canadians firms.
Gestion 2000
Strongly Indebted Companies Weakly Indebted Companies

6
Total Sample
(Book_leverage> Median) (Book_leverage< Median)
104
(Obs. = 468) Mean-
Variables (Obs. = 234) (Obs. = 234) Difference
t-Statistic
Mean Median SD Mean Median SD Mean Median SD
Book_lev Leverage Policy

-30.391***
0.47 0.476 0.181 0.617 0.6 0.101 0.322 0.332 0.109
novembre - décembre 2015
Board_Size Governance Mechanisms

-8.788***
10.269 10 2.757 11.308 11 2.428 9.231 9 2.679
Board_Indep 0.769 0.778 0.115 0.776 0.778 0.108 0.761 0.778 0.121 -1.395
CEO_Dual 0.201 0 0.401 0.175 0 0.419 0.226 0 0.381 1.384
CEO_Entr 8.588 6 8.085 9.479 7 7.460 7.697 5 8.589 -2.396***
CEO_Comp 15.326 15.001 15.086 15.44 15.214 15.069 15.198 14.844 15.082 -3.347***
Fam Ownership Structure

-4.510***
0.303 0 0.460 0.397 0 0.408 0.209 0 0.490
Instit 0.28 0 0.449 0.192 0 0.483 0.368 0 0.395 4.295***
Gov 0.021 0 0.145 0.021 0 0.145 0.021 0 0.145 0
ROA Control Variables

0.646
3.483 4.527 11.936 3.126 4.39 13.325 3.839 4.947 10.378
Tobin_Q 2.203 1.755 1.829 2.272 1.684 1.255 2.134 1.886 2.263 -0.818
Assets_Tang 0.499 0.49 0.381 0.481 0.493 0.469 0.517 0.483 0.266 1.037
Size 22.009 21.792 1.248 22.487 22.387 1.123 21.531 21.460 1.184 -8.967***
(***) Significance at 1% level.

Notes: Sample of 117 firm-years listed on the Toronto Stock Exchange Index over the period 2008-2011, Book_Lev: Total Debts / Total Assets, Board_
Size : Total Number of Directors, Board_Indep : Number of Independent Directors / Total Number of Directors, CEO_Dual : Dummy Variable equal to
1 if the CEO is also the Board Chairman and 0 otherwise, CEO_Entr : Number of years of the Executive as CEO, CEO_Comp : Logarithm of Total CEO
Compensation, Fam: Dummy Variable equal to 1 if Family ownership and 0 otherwise, Instit: Dummy Variable equal to 1 if Institutional ownership and 0
otherwise, Gov: Dummy Variable equal to 1 if Governmental ownership and 0 otherwise, ROA: Net Income / Total Assets, Tobin_Q : (Total Debts + Market
Equity)/Total Assets, Assets_Tang: Fixed Assets/Total Assets, Size: Logarithm of Total Assets
105
Empirical results For ownership structure, the results

show that family, institutional and go-
vernmental ownership are negatively
In this section, we present the results of
correlated with the book leverage of
the impact of governance mechanisms
the company (the results are significant
and ownership structure on capital
at 1% level). This means that family
structure. The fixed effects model results
companies are prone to opt for other
are summarized in Table 3.
sources of funding than borrowing.
We see that board size and board in- Moreover, companies with the govern-
dependence have no significant effect ment or financial institutions as majo-
on Canadian firms’ debt. Consequent- rity shareholder tend to limit their debt
ly, we reject hypotheses H1 and H2. which is consistent with Boubakari and
Feudjo, 2010 and Ur-Rehman, 2010.
The CEO duality has a significant and Consequently, we accept hypothesis
negative effect (significant at 5% level) H6.
on the Book-Leverage. In other words,
when the CEO is also the board chair- On the effect of control variables, Re-
man, the company tends to be less turn on assets (ROA) has a negative
leveraged. Consequently, we accept and significant (at 1% level) impact on
hypothesis H3. book leverage.
We also document a positive associa- This implies that profitable firms use
tion between the CEO Entrenchment fewer debt. In fact, these companies
and Book -Leverage. The positive effect use their profits to fund their activities
of the CEO tenure (significant at 1% instead of debt, which is consistent
level) on debt means that the entren- with the Pecking Order Theory of
ched managers pursue high leverage Myers (1984) and Myers and Majluf
(Bertrand and Mullainathan, 2003). (1984). Furthermore, Tobin’s Q and
Therefore, hypothesis H4 is rejected. firm size are positively and significant-
ly (respectively at 1% and 10% levels)
Moreover, the CEO compensation has associated with debt. This result means
a negative impact on capital structure that large companies and those with
(significant at 1% level). This finding high growth opportunities use more
implies that when CEOs are highly debt to finance their assets. However,
compensated, they rely on less debt tangibility of assets has no significant
(Wen et al., 2002). Therefore hypothe- impact on the capital structure.
sis H5 is confirmed.
106
Table 3: The Effect of the Interaction between Corporate Governance and
Table 3: The Effect of the Interaction between Corporate Governance and
Ownership Structure on the
The Effect Capital
of Corporate Structure:
Governance Fixed Structure
and Ownership Effects on Model
Capital Structure:
Ownership Structure on the Capital Structure: Fixed Effects Model
Table 3: The Effect of the Interaction between Corporate Governance and Ownership
Structure on the CapitalModel 1 Fixed Effects ModelModel 2
Structure:
Model 1T-Statistic
Coefficient Model 2T-Statistic
Coefficient
Model 1 Model 2
Governance Mechanisms Coefficient T-Statistic Coefficient T-Statistic
Coefficient T-Statistic Coefficient T-Statistic
Board_Size 0.001 0.45 -0.001 -0.3
Board_Size
Board_Indep 0.001
0.069 0.45
1.21 -0.001
0.035 -0.3
0.64
Board_Size 0.001 0.45 -0.001 -0.3
Board_Indep
CEO_Dual 0.069
-0.05 1.21
-2.25** 0.035
-0.058 0.64
-2.53**
Board_Indep 0.069 1.21 0.035 0.64
CEO_Dual
CEO_Entr -0.05
0.004 -2.25**
3.39*** -0.058
0.003 -2.53**
2.67***
CEO_Dual -0.05 -2.25** -0.058 -2.53**
CEO_Entr
CEO_Comp 0.004
-4.03 e-9 3.39***
-2.82*** 0.003
-4.39 e-9 2.67***
-3.12***
CEO_Entr 0.004 -9 3.39*** 0.003 e-9 2.67***
CEO_Comp
Ownership Structure -4.03 e -2.82*** -4.39 -3.12***
CEO_Comp
Ownership -4.03 e-9 -2.82*** -4.39e-9 -3.12***
FamStructure -0.033 -1.49 -0.224 -3.30***
Ownership Structure
Fam -0.033 -1.49 -0.224 -3.30***
Instit -0.014 -1.1 -0.208 -3.21***
Fam Instit -0.033-0.014 -1.49 -1.1 -0.224
-0.208 -3.30***
-3.21***
Gov -0.082 -1.44 -0.289 -3.39***
Instit ControlGov
Variables -0.014-0.082 -1.1 -1.44 -0.208
-0.289 -3.21***
-3.39***
Gov Control Variables
ROA -0.082 -1.44 -0.289
-0.001 -3.39***
-3.22***
ROA
Control Variables
Tobin_Q -0.001
0.007 -3.22***
3.34***
ROA Tobin_Q
Asset_Tang -0.0010.007
-0.023 3.34***
-3.22***
-1.63
Tobin_Q Asset_Tang
Size -0.023
0.022
0.007 -1.63
1.92*
3.34***
Size
Asset_TangNo. Obs. 468 0.022 468 -1.631.92*
-0.023
Size No.RObs.
2 468
7.95% 0.022 468 1.92*
16.57%
2
R
F-Stat 7.95%
3.7*** 16.57%
5.16***
No. Obs. 468 468
(***), (**) and F-Stat
(*) Significance at 1% , 5% and 10%3.7***
levels. 5.16***
R2 7.95% 16.57%
(***), (**) and (*) Significance at 1% , 5% and 10% levels.
F-Stat
Notes:
3.7*** 5.16***
(***),
Notes:(**) and (*) Significance at 1% , 5% and 10% levels.
Mode 1 :
Notes:
Mode
Mode 1
1:
Model
Model 2 :
Sample
Model 2of : 117 firm-years listed on the Toronto Stock Exchange Index over the period 2008-2011. Book_
Lev: Total Debts / Total Assets, Board_Size : Total Number of Directors, Board_Indep : Number of Inde-
Sample of 117 firm-years listed on the Toronto Stock Exchange Index over the period 2008-2011. Book_Lev: Total
pendent Directors / Total Number of Directors, CEO_Dual : Dummy Variable equal to 1 if the CEO is also
Sample
the Board
Debts of Chairman
/ Total117 firm-years
Assets, and listed on the Toronto
0 otherwise,
Board_Size : Total Stock
CEO_Entr
Number Exchange
: Number
of Directors, of Index
yearsover
Board_Indep : the
of the period
Executive
Number as CEO, Book_Lev:
of 2008-2011.
IndependentCEO_Comp Total
:
Directors / Total
Logarithm
Debts /
of
Total
Total CEO
Assets,
Compensation,
Board_Size : Total
Fam:
Number
Dummy
of
Variable
Directors,
equal
Board_Indep
to
:
1 if
Number
Family
of
ownership
Independent
and 0
Directors
oth-
/ Total
Number of Directors, CEO_Dual : Dummy Variable equal to 1 if the CEO is also the Board Chairman and 0 otherwise,
erwise, Instit: Dummy Variable equal to 1 if Institutional ownership and 0 otherwise,Gov: Dummy Variable
equal
Numberto of
1 Directors,
if Governmental
CEO_Dual ownership
: Dummy and 0 otherwise,
Variable equal to 1 ROA: Net Income
if the CEO is also the / Total
BoardAssets, Tobin_Q:
Chairman (Total
and 0 otherwise,
Debt + Market Equity)/Total Assets, Asset_Tang: Fixed Assets/Total Assets, Size: Logarithm of Total Assets.
21
107 21
Robustness Checks roborated by previous studies which

stipulate that companies with greater
Other Dependent Variables growth opportunity have lower lever-
age.
In order to check the robustness of our
results, we redefine the dependent vari- Results achieved with debt-to-equity ra-
able of the capital structure in other tio are not significant. Although it has
variables, notably, the market leverage higher explanatory power (R2 = 48.68
and debt-to-equity ratio. Results appear % and F-statistic = 26.79***), the mod-
in Table 4. el does not show significant result for
governance mechanisms nor ownership
When we use market leverage as a structure. We notice only a negative ef-
dependent variable, we notice that fect (significant at 10%) of the profitabil-
the board size has a positive and sig- ity and a positive effect (significant at
nificant effect (significant at 10% level) 1%) of the growth opportunity.
debt ratio.. This result means that large
boards are associated with high debt. These results altogether could explain
Similarly, with respect to book leverage the reasons why previous studies did
findings, we still document a negative not show consistent conclusion on the
and significant (at 1% level) associa- relationship between corporate gover-
tion between CEO compensation and nance and capital structure.
capital structure. This result implies that
companies are less leveraged when
Strongly Indebted
managers are highly compensated.
Companies vs. Weakly
Concerning the ownership structure,
Indebted Companies
only governmental ownership exhibits
a negative and significant (at 1% level) To check again the robustness of our
impact on capital structure. findings, we investigate the effect of
corporate governance through the two
For control variables, we document a subsamples - strongly indebted compa-
negative relationship between profit- nies and weakly indebted companies,
ability and market leverage and a which we have formulated previously
positive association between growth in descriptive statistics. Just to recap,
opportunity and market leverage. strongly indebted companies are those
These results are similar to those with with book leverage above the median
book leverage. But surprisingly, growth (0.476) and weakly indebted com-
opportunity is negatively associated panies are those with book leverage
with market leverage. This result is cor- lower than the median.
108
Table 4: The Effects of the Interaction between Corporate Governance and Ownership
Structure on the Capital Structure expressed in other Dependent Variables: Fixed Effects
Model.
Market Leverage Debt to Equity
Board_Size 0.006 1.77* -0.038 -0.59
Board_Indep -0.027 -0.49 -1.615 -1.5

CEO_Dual -0.034 -1.55 -0.238 -0.55
CEO_Entr 0.001 0.91 -0.024 -0.99
CEO_Comp -5.65 e-9 -4.07*** -2.32e-8 -0.84
Ownership Structure
Fam -0.007 -0.32 0.366 0.87
Instit -0.013 -1.11 0.019 0.08
Gov -0.125 -2.33*** -0.47 -0.44
Control Variables
ROA -0.001 -3.14*** -0.01 -1.85*
Tobin_Q -0.007 -3.21*** 0.732 17.61***
Asset_Tang -0.011 -0.81 0.274 0.98
Size 0.06 5.21*** 0.299 1.31
No. Obs. 468 468
R2 17.74% 48.68%
F-Stat 6.09*** 26.79***

Notes: sample of 117 firm-years listed on the Toronto Stock Exchange Index over the period 2008-2011,
Market_Lev: Total Debts / (Total Assets + Market Capitalization), Debt-to-Equity : Total Debts / Total
Equity, Board_Size : Total Number of Directors, Board_Indep : Number of Independent Directors / Total
Number of Directors, CEO_Dual : Dummy Variable equal to 1 if the CEO is also the Board Chairman and
0 otherwise, CEO_Entr : Number of years of the Executive as CEO, CEO_Comp : Logarithm of Total CEO
Compensation, Fam : Dummy Variable equal to 1 if Family ownership and 0 otherwise, Instit : Dummy
Variable equal to 1 if Institutional ownership and 0 otherwise, Gov : Dummy Variable equal to 1 if Govern-
mental ownership and 0 otherwise, ROA : Net Income / Total Assets, Tobin_Q : (Total Debt + Market
Equity)/Total Assets, Asset_Tang: Fixed Assets/Total Assets, Size: Logarithm of Total Assets.
109
Given that our dependent variable Conclusion

(book leverage) for the two subsamples
is left and right-censored at the median,
we used a random effect Tobit regres- The present paper aims to investigate
sion to estimate the effect of corporate the impact of corporate governance
governance on capital structure. The and ownership structure on the capital
results are summarized in Table 5. structure of Canadian firms. The main
governance mechanisms that we have
retained include the board size, board
Table 5 shows that board size is positi- independence, CEO duality, CEO en-
vely associated with leverage only for trenchment and CEO compensation.
strongly indebted companies. Com- Moreover, we have added other vari-
panies with larger boards of direc- ables concerning ownership structure,
tors have higher debt. This finding is notably family, institutional and gov-
consistent with previous results found ernment. Our empirical research has
with market leverage. Moreover, stron- been done on a sample consisting of
gly indebted companies present a posi- 117 Canadian listed companies over
tive (significant at 1% level) association the period 2008-2011.
between manager entrenchment and
book-leverage.
As a proxy for capital structure, we
retained book leverage in a first step.
We still document a negative effect of Then, we used other variables, mainly
CEO compensation on capital structure market leverage and debt to equity ra-
for both subsamples (respectively signi- tio. Our results show that duality and
ficant at 1% and 5%). CEO compensation are negatively as-
sociated with leverage, while CEO en-
trenchment affects positively the capital
On the other hand, ownership structure structure. Family, institutional and gov-
does not exhibit a significant effect on ernmental ownership have a negative
leverage for either subsample. For the impact on the capital structure. We
control variables, the results are similar show however that board size and
to those of a fixed effect model. Profi- board independence have no signifi-
tability and assets tangibility are nega- cant effect on debt.
tively correlated with capital structure.
Growth opportunity and firm size still
Moreover, this research contributes to
have a positive effect on book leve-
a enhance our understanding of corpo-
rage.
rate governance, ownership structure
and capital structure issues, and, there-
fore, it may help Canadian regulators,
110
Table 5: Random Effects Tobit Regressions of Corporate Governance on Capital Structure in

Strongly and Weakly Indebted Companies
Strongly Indebted Companies Weakly Indebted Companies
Board_Size 0.008 2.06* -0.002 -0.56
Board_Indep 0.078 1.17 0.003 0.05
CEO_Dual -0.029 -1.29 -0.029 -1.28

CEO_Entr 0.003 2.76*** 0.002 1.58
CEO_Comp -5.03 e-9 -2.37** -4.14e-9 -3.02***
Ownership Structure
Fam 0.023 0.96 0.021 1.08
Instit -0.018 -1.24 -0.003 -0.24
Gov -0.067 -1.24 0.03 0.34
Control Variables
ROA -0.001 -2.62*** -0.001 -3.37***
Tobin_Q 0.005 1.2 0.008 4.21***
Asset_Tang -0.004 -0.27 -0.05 -2.63***
Size 0.052 4.78*** 0.047 4.44***
No. Obs. 234 234
Log-Likelihood 150.266*** 204.172***
Notes: Sample of 117 firm-years listed on the Toronto Stock Exchange Index over the period 2008-2011,
Strongly Indebted Companies: Book_leverage> Median, Weakly Indebted Companies: Book_leverage
< Median, Book_Lev: Total Debts / Total Assets, Board_Size : Total Number of Directors, Board_Indep :
Number of Independent Directors / Total Number of Directors, CEO_Dual : Dummy Variable equal to 1
if the CEO is also the Board Chairman and 0 otherwise, CEO_Entr : Number of years of the Executive
as CEO, CEO_Comp : Logarithm of Total CEO Compensation, Fam: Dummy Variable equal to 1 if Family
ownership and 0 otherwise, Instit: Dummy Variable equal to 1 if Institutional ownership and 0 otherwise,
Gov: Dummy Variable equal to 1 if Governmental ownership and 0 otherwise, ROA: Net Income / Total
Assets, Tobin_Q: (Total Debt + Market Equity)/Total Assets, Asset_Tang: Fixed Assets/Total Assets, Size:
Logarithm of Total Assets.
111
academics and institutional investors References

find better solutions to agency prob-
lems between shareholders, managers
Adjaoud, F. and Ben Amar, W. (2010). ‘Cor-
and debtholders.
porate Governance and Dividend Policy: Share-
holders’ Protection or Expropriation?’, Journal of
Consistent with all similar studies on Business Finance and Accounting, Vol. 37, No.
5-6, pp. 648-667.
this topic, we recognize that ours is not
without some weaknesses. Firstly, our Attig, N. (2003). ‘Corporate Governance,
sample size is small and this limits our Corporate Policies and Stock Market Liquidity:
Evidence on Dilution of Minority Interests’, PhD
willingness to generalise our findings. Thesis from University of Laval, Canada.
However, the sample we used is well
diversified and is representative of the Baxter, I. (1968). ‘The Law of Banking and the
Canadian Bank Act’, 2nd ed. Toronto: Carswell.
index commonly used in other studies
(Adjaoud and Ben Amar, 2010; Klein Berger, P.G., Ofek, E. and Yermack, D.L. (1997).
‘Managerial Entrenchment and Capital Structure
et al. 2005 and Bozec and Bozec,
Decisions’, Journal of Finance, Vol. 52, No. 4,
2007). Secondly, the endogeneity re- pp. 1411-1438.
mains a potential limit. However, we
Berle, A.A. and Means, G.C. (1932). ‘The Mod-
included enough control variables in
ern Corporation and Private Property’, Macmil-
the models we tested that we believe lan Company, New York.
help to reduce the impact on our esti-
Bertrand, M. and Mullainathan, S. (2003).
mates. ‘Enjoying the Quiet Life? Corporate Governance
and Managerial Preferences’, Journal of Political
Thirdly, our results do not imply cau- Economy, Vol. 111. pp. 1043-75.
sality but only a correlation between Boodhoo, R. (2009). ‘Capital Structure and
capital structure and corporate gov- Ownership Structure: A Review of Literature’,
ernance mechanisms. We hope future The Journal of Online Education, January, New
York.
studies will tackle the causality, if any,
using Granger causality test. Booth, L., Aivazian, V., Demirguc-Kunt, A. and
Maksimovic, V. (2001). ‘Capital Structures in De-
veloping Countries’, Journal of Finance, Vol. 56,
Our main contribution is that a link was No. 1, pp. 87-130.
established between capital structure
Boubakari, A. and Feudjo, J.R. (2010). ‘Corpor-
and some corporate governance mech- ate Governance for the Best Financing Choices:
anisms in Canada. It adds an addition- An Empirical Study from Family Firms in North-
al piece to our understanding of this ern Cameroon’, International Journal of Econom-
ics and Finance, Vol. 2, No. 2, pp. 70-77.
crucial topic in corporate finance. An
extension of our paper would examine Bozec, Y. and Bozec, R. (2007). ‘Ownership
the impact of a governance quality in- Concentration and Corporate Governance Prac-
tices: Substitution or Expropriation Effects?’ Can-
dex on capital structure and other fi- adian Journal of Administrative Sciences, Vol.
nancial decisions. 24, pp. 182–95.
112
Brailsford, J., Timothy, B., Oliver, R. and Sandra, Friend, I. and Lang, I. (1988). ‘An Empirical
L. (2002). ‘On the relationship between Owner- Test of the Impact of Managerial Self-Interest on
ship Structure and Capital Structure’, Journal of Corporate Capital Structure’, Journal of Finance,
Accounting and Finance, Vol. 42, pp. 1-26. Vol. 43, No. 2, pp. 271-281.
Buckley, F.H. (1997). ‘The Canadian Keiretsu’, Jensen, M. and Meckling, W. (1976). ‘Theory of
Journal of Applied Corporate Finance, Vol. 9, the Firm: Managerial Behaviour, Agency Costs
No. 4, pp. 46-57. and Ownership Structure’, Journal of Financial
Economics, pp. 305-360.
Cheng, S., Nagar, V. and Rajan, M. (2005).
‘Identifying Control Motives in Managerial Jensen, M. (1986). ‘Agency Cost of Free Cash
Ownership: Evidence from Antitakeover Legis- Flow, Corporate Finance and Takeovers’, Amer-
lation’, Review of Financial Studies, Vol. 18, pp. ican Economic Review, Vol. 76, pp. 323-339.
636-72.
Jiraporn, P., Kim, J.C., Kim, Y.S. and Kitsabun-
Claessens, S., Djankovs, S. and Larry, H.P.L. nartat, P. (2012). ‘Capital Structure and Corpor-
(2002). ‘Disentangling the Incentive and En- ate Governance Quality: Evidence from the Insti-
trenchment Effects of Large Shareholdings’, Jour- tutional Shareholder Services (ISS)’, International
nal of Finance, Vol. 57, No. 6, pp. 2741-2771. Review of Economics and Finance, Vol. 22, pp.
208-221.
Deesomsak, R., Paudyal, K. and Pescetto, G.
(2004). ‘The Determinants of Capital Structure: Kayhan, A. (2003). ‘Managerial Entrenchment
Evidence from the Asian Pacific Region’, Journal and the Debt – Equity Choice’, Working Paper,
of Multinational Financial Management, Vol. 14, University of Texas at Austin, Austin TX.
No. (4-5), pp. 387-405.
King, M.R. and Santor, E. (2007). ‘Family Val-
Driffield, N., Vidya, M. and Sarmistha, P. ues: Ownership Structure, Performance and
(2005). ‘How Ownership Structure Affects Cap- Capital Structure of Canadian Firms’, Working
ital Structure and Firm Performance ?’, Recent paper 2007-40, Bank of Canada.
evidence from East Asia, Finance 0505010,
Economics Working paper, Archive Econ WPA. Klein, P., Shapiro, D. and Young, J. (2005).
‘Corporate Governance, Family ownership and
Faccio, M., Lang, L.H.P. and Young, L. (2010). Firm Value: The Canadian Evidence’, Corporate
‘Pyramiding vs Leverage in Corporate Groups: Governance: An International Review, Vol. 6,
International Evidence’, Journal of International pp. 769-784.
Business Studies, Vol. 41, pp. 88-104.
La Porta R., Lopez-de-Silanes, F., Shleifer, A. and
Fama, E.F. and French, K.R. (2001). ‘Disap- Vishny, R.W. (1998). ‘Law and Finance’, Jour-
pearing Dividends: Changing Firm Character- nal of Political Economy, Vol. 106, No. 6, pp.
istics or Lower Propensity to Pay ?’, Journal of 1113-1155. (2000). ‘Investor Protection and
Financial Studies, Vol. 15, No. 1, pp. 1-33. Corporate Governance’, Journal of Financial
Economics, Vol. 58, No. (1-2), pp. 3-27.
Fama, E. and Jensen, M. (1983). ‘Separation
of Ownership and Control’, Journal of Law and Lipton, M. and Lorsch, J.W. (1992). ‘A Modest
Economics, Vol. 26, No. 2, pp. 301-325. Proposal for Improved Corporate Governance?’,
Business Lawyer, Vol. 48, pp. 59-77.
Fosberg, R.H. (2004). ‘Agency Problems and
Debt Financing: Leadership Structure Effects’, Litov, L.P. (2005). ‘Corporate Governance and
Corporate Governance: International Journal of Financing Policy: New Evidence’, Working
Business in Society, Vol. 4, No. 1, pp. 31-38. Paper, Stern School of Business, New York Uni-
versity, New York.
113
Lubatkin, M. and Chatterjee, S. (1994). ‘Ex- Reuter, C. (2009). ‘Capital Structure in Europe,
tending Modern Portfolio Theory into the Domain Managerial Insight and Governance Regimes’,
of Corporate Diversification: Does it Apply?’, working paper.
Academy of Management Journal, Vol. 37, pp.
109-136. Titman, S. and Wessls, R. (1988). ‘The Deter-
minants of Capital Structure Choice’, Journal of
Myers, S.C. (1984). ‘The Capital Structure Puz- Finance, Vol. 43, No. 1, pp. 1-19.
zle’, Journal of Finance, Vol. 39, pp. 575-592.
Ur-Rehman, M.A., Ur-Rehman, R. and Raoof, A.
Myers, S.C. and Majluf, N.S. (1984). ‘Corpor- (2010). ‘Does Corporate Governance Lead to
ate Financing and Investment Decisions: When a Change in the Capital Structure?’, American
Firms have Information that Investors do not Journal of Social and Management Sciences,
have’, Journal of Financial Economics, Vol. 13, Vol. 1, No. 2, pp. 323-329.
pp. 187-221.
Wen, Y., Rwegasira, K. and Bilderbeek, J.
Pinegar, M. and Wilbricht, L. (1989). ‘What (2002). ‘Corporate Governance and Capital
Managers Think of Capital Structure Theory: A Structure Decisions of the Chinese Listed Firms’,
Survey’, Financial Management, Winter, pp. 82- Corporate Governance: An International Re-
91. view, Vol. 10, No. 2, pp. 75-83.
Rajan, R. and Zingales, L. (1995). ‘Is there an

Optimal Capital Structure? Some Evidence from
International Data’, Journal of Finance, Vol. 50,
No. 5, pp. 1421-1460.
114

Tema 1 Hermassi2015 CorpGovernance Ownership CapStruct

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Tema 1 Hermassi2015 CorpGovernance Ownership CapStruct

Uploaded by

Copyright:

Available Formats

THE EFFECT OF CORPORATE GOVERNANCE AND OWNERSHIP

STRUCTURE ON CAPITAL STRUCTURE : EMPIRICAL EVIDENCE FROM

Nadia Hermassi, Fodil Adjaoud, Chaker Aloui

Association de Recherches et Publications en Management | « Gestion 2000 »

Distribution électronique Cairn.info pour Association de Recherches et Publications en Management.

Powered by TCPDF (www.tcpdf.org)

The Effect of Corporate

econometric results and section 6 con- positive relationship between board

Variable Definitions dent directors divided by the total

Descriptive statistics Strongly indebted firms achieved a

Strongly Indebted Companies Weakly Indebted Companies

Book_lev Leverage Policy

Board_Size Governance Mechanisms

CEO_Dual 0.201 0 0.401 0.175 0 0.419 0.226 0 0.381 1.384

CEO_Entr 8.588 6 8.085 9.479 7 7.460 7.697 5 8.589 -2.396***

Fam Ownership Structure

Instit 0.28 0 0.449 0.192 0 0.483 0.368 0 0.395 4.295***

Gov 0.021 0 0.145 0.021 0 0.145 0.021 0 0.145 0

ROA Control Variables

(***) Significance at 1% level.

Empirical results For ownership structure, the results

Robustness Checks roborated by previous studies which

Market Leverage Debt to Equity

Coefficient T-Statistic Coefficient T-Statistic

Board_Size 0.006 1.77* -0.038 -0.59

Board_Indep -0.027 -0.49 -1.615 -1.5

CEO_Entr 0.001 0.91 -0.024 -0.99

CEO_Comp -5.65 e-9 -4.07*** -2.32e-8 -0.84

Fam -0.007 -0.32 0.366 0.87

Instit -0.013 -1.11 0.019 0.08

Gov -0.125 -2.33*** -0.47 -0.44

ROA -0.001 -3.14*** -0.01 -1.85*

Tobin_Q -0.007 -3.21*** 0.732 17.61***

Asset_Tang -0.011 -0.81 0.274 0.98

Size 0.06 5.21*** 0.299 1.31

No. Obs. 468 468

F-Stat 6.09*** 26.79***

(***), (**) and (*) Significance at 1% , 5% and 10% levels.

Given that our dependent variable Conclusion

Table 5: Random Effects Tobit Regressions of Corporate Governance on Capital Structure in

Strongly Indebted Companies Weakly Indebted Companies

Coefficient T-Statistic Coefficient T-Statistic

Board_Size 0.008 2.06* -0.002 -0.56

Board_Indep 0.078 1.17 0.003 0.05

CEO_Dual -0.029 -1.29 -0.029 -1.28

CEO_Comp -5.03 e-9 -2.37** -4.14e-9 -3.02***

Fam 0.023 0.96 0.021 1.08

Instit -0.018 -1.24 -0.003 -0.24

Gov -0.067 -1.24 0.03 0.34

ROA -0.001 -2.62*** -0.001 -3.37***

Tobin_Q 0.005 1.2 0.008 4.21***

Asset_Tang -0.004 -0.27 -0.05 -2.63***

Size 0.052 4.78*** 0.047 4.44***

No. Obs. 234 234

Log-Likelihood 150.266*** 204.172***

(***), (**) and (*) Significance at 1% , 5% and 10% levels.

academics and institutional investors References

Rajan, R. and Zingales, L. (1995). ‘Is there an

You might also like

Tobin_Q -0.007 -3.21* 0.732 17.61*

F-Stat 6.09* 26.79*

(), () and () Significance at 1% , 5% and 10% levels.

CEO_Comp -5.03 e-9 -2.37 -4.14e-9 -3.02*

ROA -0.001 -2.62* -0.001 -3.37*

Size 0.052 4.78* 0.047 4.44*

Log-Likelihood 150.266* 204.172*

(), () and () Significance at 1% , 5% and 10% levels.