Ownership Structure and Debt as Corporate Governance Mechanisms: An Empirical Analysis for Spanish Smes

Abstract

The purpose of this paper is to analyze the relationship between ownership structure and indebtedness for a sample of 2,544 Spanish small and medium enterprises. A System Generalized Method of Moments methodology is applied to control for the heterogeneity and endogeneity problems. The finding shows a negative effect of several measures of ownership on debt ratio. Therefore, the presence of an individual as main shareholder has a positive effect on debt, while the presence of a corporation as main shareholder exerts a negative influence. As research implications, this paper includes the agency problem based on principal-principal conflicts to explain the capital structure of small and medium enterprises, going beyond traditional principal-agent conflicts. The main practical implications of the paper is that owners who seek equity financing can use the results of this study for understanding better why investors are reluctant to invest in their small and medium enterprises. Policymakers can use the results of this study to develop better policies and to promote better provision of information for all stakeholders. About the contribution of this study, we are not aware of any paper that uses a panel of small and medium enterprises operating in a French-civil law country to examine the relationship between indebtedness and three different proxies of the ownership structure.

Financial decisions and ownership structure as control mechanisms of agency problems: evidence from Italy

“…As in the empirical study of ownership structure, there might emerge serious endogeneity problems attributable to possible simultaneity (Demsetz and Lehn, 1985), in accordance with certain prior studies (De Miguel et al , 2005; Marchica, 2008; Faccio et al , 2010; Pindado and de la Torre, 2011; López-Iturriaga and Rodríguez-Sanz, 2012; Hernández-Cánovas et al , 2016; Santos et al , 2014), a dynamic panel data econometric model including two-step system-generalized method of moments (GMM) (Anderson and Hsiao, 1981; Arellano and Bond, 1991; Blundell and Bond, 1998) is estimated as it is a more powerful econometric tool that captures the two components of endogeneity attributable to the unobservable heterogeneity and the simultaneity of the variables (e.g. Wooldridge, 2002; Wintoki et al , 2012).…”

“…CONTROL_VARIABLES include a set of variables that are firm-specific and RISK , that is the standard deviation of stock returns and is used as a proxy of the specific business risk; ROA measures the company’s profitability and is calculated as the ratio of the firm’s EBIT (earnings before interest and taxes) to its total assets; FIXASSETS measures the ratio between fixed investments (property, plant and equipment) and total assets; INTANGASSETS is measured by the ratio between the value of intangible assets (R&D, patent, and trademark) and total assets; SALESGROW is the growth rate of sales revenues ( REV t – REV t-5 /REV t-5 ); TOBIN’S Q is an indicator of growth opportunities and firm value; AGE measures the number of years since the birth of the company (in logarithmic form); SIZE is a proxy for the size of the enterprise and is measured by the logarithm of total assets[3]; INDUSTRY is measured by the four-digit SIC codes (excluding all SIC codes 6000-6999 and 4900-4999) and includes a set of dummy variables; η t is the temporal dummy; ε is the residual term and t = 2002, 2003, 2004,…2013. All the control variables have been chosen so as to reflect the existing literature on capital structure, dividends and cash holding (Rozeff, 1982; Easterbrook, 1984; Myers and Majluf, 1984; Jensen et al , 1992; Rajan and Zingales, 1995; Crutchley et al , 1999; Opler et al , 1999; Faccio et al , 2001; Dittmar et al , 2003; Ozkan and Ozkan, 2004; Mancinelli and Ozkan, 2006; Truong and Heaney, 2007; Faccio et al , 2010; De Cesari, 2012; Bigelli and Sánchez-Vidal, 2012; Santos et al , 2015; Hernández-Cánovas et al , 2016).…”

Female CEOs, Returns and Risk in Spanish Publishing Firms

“…The control variables are (Sánchez‐Vidal and Martín‐Ugedo, ; Bigelli et al ., ; Hernández‐Cánovas et al, ): Return on assets, firm size and firm age (defined above), Intangible assets (calculated as the sum of intangible asset divided by total assets), the cost of the debt, defined as the ratio of financial expenses to total debt, and the interest coverage ratio, measured as earnings before interest and taxes divided by financial expenses.…”

Regulatory Dualism as an Alternative Trust‐Enhancing Mechanism for Dividends and Debt: Evidence from Brazil*

“…For dividends (DIV1), we use the payout ratio, measured as total cash dividends over total assets (Kusnadi and Wei 2011; Pindado et al 2012; Lozano and Caltabiano 2015) and total cash dividends over total equity (DIV2) as an alternative measure. Leverage (LEV1) is measured as total debt over total assets (Lopez‐Gracia and Sogorb‐Mira 2008; Hernandez‐Cánovas et al 2016) and also as LEV2, measured as long‐term debt over total assets (Pindado et al 2017). Cash holding (CASH) is measured as the sum of cash and short‐term investments over total assets.…”