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.

Keywords:

• ownership structure
• indebtedness
• small and medium enterprises
• System Generalized Method of Moments
• Agency Theory
• principal-principal perspective

JEL Classification:

• G23
• G24

Additional information

Notes on contributors

Ginés Hernández-Cánovas

Ginés HERNÁNDEZ-CÁNOVAS is Associate Professor of Finance at the Faculty of Business Studies, Technical University of Cartagena (Spain). His current research interests include corporate finance management, capital structure and relationship lending. His empirical work has centred around the financial decision-making process within SMEs. He has published in refereed international journals such as Small Business Management, International Small Business Journal and Small Business Economics.

Antonio Mínguez-Vera

Antonio MÍNGUEZ-VERA is PhD in Economics and Business (Technical University of Cartagena). At present he is Associate Professor of Financial Economics at the University of Murcia. His main research topics are related to gender diversity, corporate finance and corporate governance. He has published in refereed international journals such as Journal of Business Ethics, International Journal of Human Resource Management and International Review of Financial Analysis.

Javier Sánchez-Vidal

Javier SÁNCHEZ-VIDAL is Associate Professor (Business Finance) at the Faculty of Business Studies, Technical University of Cartagena (Spain). Phd in Economics and Business (Technical University of Cartagena). Master of Money, Banking and Finance at the Sheffield University Management School at the Sheffield University (UK). Graduate in Economics at the University of Murcia (Spain). Fields of interest – Econometrics – Corporate Finance – Cash Holdings. He has published in refereed international journals such as Journal of Business Economics and Management, Journal of Banking and Finance, Economic Modelling, Journal of Business Research and Review of Quantitative Finance and Accounting.