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- Title
Ultimate Corporate Ownership Structures and Capital Structures: evidence from East Asian economies.
- Authors
Du, Julan; Dai, Yi
- Abstract
This paper studies the relationship between corporate leverage and the ultimate corporate ownership structure, particularly the separation of cash flow rights and control rights. We empirically disentangle the three potential effects of the divergence of control rights from cash flow rights on corporate leverage, i.e. the non-dilution entrenchment effect, the signalling effect of debt and the reduce-debt-for-tunnelling effect. Our evidence from the East Asian corporations mainly supports the notion that controlling shareholders with relatively small ownership share tend to increase leverage out of the motive of raising external finance without diluting their shareholding dominance. The separation of cash flow rights and control rights contributes to the risk-taking tendency of the large controlling shareholders in capital structure choice. We argue that the risky capital structure choice serves as one potential channel through which weak corporate governance contributes to the severity of corporate value losses during the Asian financial crisis.
- Subjects
STOCK ownership; CASH flow; DEBT management; STOCKHOLDERS; CORPORATE finance; CORPORATE governance; EAST Asian business enterprises
- Publication
Corporate Governance: An International Review, 2005, Vol 13, Issue 1, p60
- ISSN
0964-8410
- Publication type
Article
- DOI
10.1111/j.1467-8683.2005.00403.x