Ownership structure and corporate financing

Abstract

This article examines empirically the effect of ownership structure on the corporate financing decision from the agency theory perspective. This article contributes to the literature by examining the static and the dynamic effects of managerial insiders and large shareholders' ownership on the capital structure. Based on panel data analysis for a sample of Jordanian industrial firms during the period 2001 to 2005, the study provides empirical evidence indicating that the debt ratio is negatively related to managerial ownership and inconclusively related to individual block-holders' ownership. Moreover, the study finds no significant relationship between debt ratio and institutional ownership. These results are consistent with the entrenchment behaviour of managers and passive monitoring by institutions. Finally, supporting the results of previous literature, this study reveals that the capital structure is affected by firm's profitability, size and growth.

Acknowledgements

The authors would like to thank the editor, Mark Taylor, and an anonymous referee for their valuable comments, all of which have improved the article. The remaining errors are the authors’ responsibility.