Ownership structure influencing the joint determination of dividend, leverage, and cost of capital

Figures & data

Table 1. Variables definition. This table presents the definitions of the variables used in the study

Functional notation(s)	Variables	Definition	References
DIV	Dividend Payout	Ratio of dividend payout to earnings before interest and taxes	Aivazian et al. (2006)
LEV	Debt ratio	Ratio of total debt to book value of total assets	Faccio et al. (2001)
COC	Cost of Capital	Weighted average cost of equity and cost of debt	Modigliani and Miller (1958)
FAM	Family Ownership	Aggregate equity owned by the family or group of families	Andres (2008), Setia-Atmaja, Tanewski, and Skully (2009)
CORP	Body corporates Ownership	Proportion of equity owned by the affiliated corporate shareholders	Authors
INS	Institutional Ownership	Aggregate equity owned by unaffiliated institutional shareholders	Mulyani et al. (2016)
ROA	Profitability	Return on assets	Fama and French (2000)
RISK	Operating risk	Ratio of SD (1^st difference of Operating Income) to Total Assets	Jensen et al. (1992)
SIZE	Firm size	The natural logarithm of a firm’s total assets.	Eddy and Seifert (1988)
CAPEX	Capital Expenditure	A ratio of capex to firm’s total assets	Han, K. et al. (1999)
R&D	Research Expenditure	A ratio of R&D expenses to firm’s total assets	Jensen et al. (1992)
CR	Liquidity	Current ratio	Myers and Frank (2004)
SGR	Net sales growth rate	Geometric mean of 3 years growth in sales	Jensen et al. (1992)
FATA	Tangibility	A ratio of net fixed assets to total assets	Aivazian et al. (2003)
MTB	Market-to-book ratio	A ratio of market value to book value of equity	Denis and Osobov (2008)
TAX	Tax ratio	Ratio of tax payments to net sales	Authors
INT	Interest ratio	Ratio of interest payments to profit before interests and tax	Authors
DivGR	Dividend growth rate	Geometric mean of 3 years growth in dividends	Bathala and Rao (2005)
DebtGR	Debt growth rate	Geometric mean of 3 years growth in debt	Bathala and Rao (2005)

Table 2. Variables: descriptive statistics

	Aggregate (457)		WIDE (183)		FAMILY (274)		FAMCON (183)
Variable	Mean	SD	Mean	SD	Mean	SD	Mean	SD
DIV	0.1541	0.2305	0.1777	0.2476	0.1383***	0.2169	0.1258***	0.1188
LEV	0.2244	0.1776	0.1892	0.1743	0.2479***	0.1759	0.2409***	0.1712
COC	5.9014	6.5855	6.7540	8.9155	5.3319***	4.2961	4.8445***	2.5939
FAM	19.8867	22.6913	0.9815	2.2842	32.5132***	21.3811	43.0924***	17.7761
CORP	34.1500	23.6830	51.6705	16.7864	22.4484***	20.1342	14.3140***	16.4715
INS	15.3047	13.7664	19.1072	14.1945	12.7651***	12.8636	10.8304***	11.1030
ROA	0.1325	0.0877	0.1397	0.0924	0.1278***	0.0842	0.1256***	0.0776
RISK	3.5407	3.2936	3.6935	3.2059	3.4386***	3.3474	3.6124	3.6536
SIZE	7.0307	1.4439	7.5951	1.4954	6.6538***	1.2765	6.4602***	1.2201
CAPEX	0.0575	0.1165	0.0593	0.1614	0.0564	0.0725	0.0544	0.0722
R&D	0.0045	0.0110	0.0040	0.0099	0.0048**	0.0117	0.0048**	0.0126
CR	1.8485	2.6928	1.7106	2.2224	1.9407***	2.9625	2.1189***	3.5008
FATA	0.2945	0.1692	0.2894	0.1683	0.2979	0.1698	0.2930	0.1738
SGR	0.1513	0.4132	0.1498	0.4792	0.1524	0.3626	0.1544	0.4300
MTB	2.8868	3.7916	3.5046	4.5755	2.4741***	3.0946	2.2749***	2.8519
TAX	0.0436	0.1694	0.0434	0.1231	0.0437	0.1943	0.0468	0.2064
INT	0.2034	2.1456	0.1030	3.0445	0.2705***	1.2158	0.2209	0.5586
DivGR	0.0044	0.5199	0.0218	0.4710	−0.0072	0.5500	−0.0148**	0.5577
DebtGR	0.2038	0.8912	0.2006	0.9994	0.2060	0.8111	0.1947	0.6883

This table provides the descriptive statistics of key parameters for aggregate, widely held firms, family firms, and family-controlled firms. DIV, LEV, and COC indicate the dividend payout ratio, debt ratio, cost of capital, respectively. FAM, CORP, and INS represent ownership proportion held by the family, corporate and institutional investors group, respectively. ROA, RISK, and SIZE specify profitability, operating risk, and firm size, respectively. CAPEX, R&D, CR, FATA, and SGR denote investment, research and development expense ratio, current ratio, tangibility, and growth in net sales (YoY), respectively. MTB, TAX, INT, DivGR, and DebtGR symbolize market-to-book ratio, tax ratio, interest ratio, dividend growth rate, and debt growth rate, respectively. SD denotes standard deviation. Table 1 explains each variable.

***, ** denote statistical significance at the 1% and 5% level, respectively, for FAMILY and FAMCON w.r.t. WIDE firms.

Figure 1. Interdependencies among policy variables.

This figure presents the interrelationship diagram between dividend, leverage, and cost of capital along with the common variables influencing the three policy decisions and other key variables affecting a specific policy decision. DIV, LEV, and COC are the policy-related variables, which indicate the dividend payout ratio, debt ratio, and cost of capital, respectively. FAM, CORP, INS, ROA, RISK, and SIZE are common variables affecting the three policy decisions. FAM, CORP, and INS represent ownership proportion held by the family, corporate, institutional investors group, respectively. ROA, RISK, and SIZE specify profitability, operating risk, and firm size, respectively. CAPEX, R&D, and CR are specific to dividend decision, which denote investment, research and development expense ratio, and current ratio, respectively. Leverage specific variables are FATA, SGR, and MTB representing tangibility, growth in net sales (YoY), and market-to-book ratio, respectively. TAX, INT, DivGR, and DebtGR symbolize, tax ratio, interest ratio, dividend growth rate, and debt growth rate, respectively. These factors are specific to the cost of capital. Table 1 explains each variable.

Figure 2. Cost of equity, debt, and capital (in %).

These graphs depict cost of equity (COE), cost of debt (COD), and cost of capital (COC), all in percentage, for aggregate sample firms, widely held firms, and family firms, respectively.

Table 3. DIV model

	All Firms		WIDE		FAMILY		FAMCON
	Coefficient	z	Coefficient	z	Coefficient	z	Coefficient	z
Intercept	0.2022***	8.085	0.2957***	7.0260	0.0645	1.2100	0.1736***	7.8890
LEV	−0.4297***	−10.29	−0.6717***	−9.3300	−0.3303***	−3.5350	−0.4427***	−9.9070
COC	0.0138***	13.47	0.0108***	12.3200	0.0699***	9.7960	0.0284***	6.6990
FAM	0.0004	1.484	0.0005	0.2210	0.0011**	2.2530	0.0007***	3.2670
CORP	0.0006**	2.498	−0.0009**	−2.2480	−3.34e^−05	−0.0605	0.0005**	2.5260
INS	0.0008**	2.155	−0.0015**	−2.4080	0.0022***	3.0580	0.0015***	5.2450
ROA	−0.4978***	−9.568	−0.5855***	−6.9160	−1.3393***	−9.0370	−0.4358***	−6.9030
RISK	0.0007	0.7601	0.0014	0.8605	0.0010	0.5023	0.0016**	2.4170
SIZE	−0.0013	−0.4276	0.0110**	2.2870	−0.0193***	−2.8510	−0.0139***	−5.5080
CAPEX	0.0009	0.1211	0.0101	0.8491	−0.0410	−0.7618	0.0733**	2.5290
R&D	−0.0212	−0.2282	0.1173	0.5970	1.0239**	2.5150	0.3480**	2.0310
CR	−0.0002	−0.379	0.0024**	2.2540	0.0067***	3.1680	0.0013	1.4980
Equation R^2	16.95%		19.45%		6.13%		21.45%
System R^2	36.70%		54.39%		16.85%		14.53%
Observations	5,027		2,013		3,014		2,013

This table presents the 3SLS regression estimates for LEV model (Equation 2) of system model for the sample groups (aggregate, widely held firms, family firms, and family-controlled firms), where the coefficients are estimated by fitting the system equations (DIV model, LEV model, and COC model) for each sample groups:

Where DIV, LEV, and COC indicate the dividend payout ratio, debt ratio, cost of capital, respectively. FAM, CORP, and INS represent ownership proportion held by the family, corporate and institutional investors group, respectively. ROA, RISK, and SIZE specify profitability, operating risk, and firm size, respectively. FATA, SGR, and MTB denote tangibility, growth in net sales (YoY), and market-to-book ratio, respectively. Table 1 explains each variable.

***, **, * denote statistical significance at the 1%, 5% and 10% level, respectively.

Table 4. LEV equation

	All Firms		WIDE		FAMILY		FAMCON
	Coefficient	z	Coefficient	z	Coefficient	z	Coefficient	z
Intercept	0.0705***	2.8660	0.2036***	7.9530	−0.0101	−0.2724	−0.0260	−0.5326
DIV	−0.1982***	−4.7280	−0.3844***	−12.5600	−0.2352***	−4.3790	−0.4809***	−4.1020
COC	0.0253***	7.5410	0.0029	1.0010	0.0603***	11.1600	0.0829***	13.9500
FAM	0.0011***	4.0440	0.0049***	3.5170	0.0009**	2.5730	0.0009***	2.6520
CORP	−0.0002	−0.8603	−0.0014***	−4.9350	−0.0007*	−1.7530	0.0006*	1.7270
INS	−9.08e^−05	−0.2326	−0.0023***	−5.1790	−0.0001	−0.2545	0.0008	1.5270
ROA	−0.9591***	−14.1600	−0.5571***	−6.7730	−1.3837***	−14.7400	−1.2104***	−17.4200
RISK	−0.0030***	−3.6570	−0.0017	−1.5890	−0.0032**	−2.4700	−0.0003	−0.2439
SIZE	0.0190***	7.8300	0.0187***	6.9020	0.0149***	3.3740	0.0026	0.5668
FATA	0.2835***	16.6500	0.2916***	12.1100	0.2618***	10.4500	0.0436**	2.1390
SGR	0.0409***	6.0080	0.0139**	2.0420	0.0358***	3.3700	0.0064	0.9804
MTB	−0.0226***	−7.2550	−0.0005	−0.1349	−0.0161***	−7.5350	−0.0042	−2.3300
Equation R^2	19.88%		31.62%		11.12%		20.95%
System R^2
Observations	5,027		2,013		3,014		2,013

This table presents the 3SLS regression estimates for LEV model (Equation 2) of system model for the sample groups (aggregate, widely held firms, family firms, and family-controlled firms), where the coefficients are estimated by fitting the system equations (DIV model, LEV model, and COC model) for each sample groups:

Where DIV, LEV, and COC indicate the dividend payout ratio, debt ratio, cost of capital, respectively. FAM, CORP, and INS represent ownership proportion held by the family, corporate and institutional investors group, respectively. ROA, RISK, and SIZE specify profitability, operating risk, and firm size, respectively. FATA, SGR, and MTB denote tangibility, growth in net sales (YoY), and market-to-book ratio, respectively. Table 1 explains each variable.

***, **, * denote statistical significance at the 1%, 5% and 10% level, respectively.

Table 5. COC equation

	All Firms		WIDE		FAMILY		FAMCON
	Coefficient	z	Coefficient	z	Coefficient	z	Coefficient	z
Intercept	−14.8102***	−7.3890	−28.5551***	−6.9320	−2.4478**	−2.4520	−1.6937*	−1.9330
DIV	72.2072***	15.3900	93.8959***	13.3300	16.6567***	5.4920	13.6208***	4.4110
LEV	30.6314***	9.1770	57.5868***	8.9040	9.7057***	5.0330	12.5976***	11.8700
FAM	−0.0264	−1.5840	0.0161	0.0821	−0.0169**	−1.9770	−0.0127***	−2.6420
CORP	−0.0441***	−2.6480	0.0765**	2.2170	−0.0023	−0.2235	−0.0095*	−1.8810
INS	−0.0546**	−2.3610	0.1217**	2.3900	−0.0239**	−1.9670	−0.0194***	−2.6150
ROA	37.6100***	12.0200	55.3122***	9.1100	21.8627***	13.0400	14.9168***	15.4500
RISK	−0.0696	−1.0950	−0.2177	−1.5850	−0.0042	−0.1319	−0.0119	−0.7083
SIZE	0.1254	0.6461	−0.7004*	−1.7790	0.1906*	1.8020	0.1299*	1.8180
TAX	−0.1253	−0.3314	0.2694	0.1866	−0.0026	−0.0078	0.0181	0.1408
INT	−0.0868	−1.4590	−0.0165	−0.3037	−0.2002	−1.1700	−0.0018	−0.0289
DivGR	−0.9034*	−1.7260	−3.6804***	−2.6640	−0.2288	−1.0420	0.0190	0.0969
DebtGR	−0.0539	−0.5887	−0.4974***	−2.7040	−0.0852	−0.8387	0.0653	1.3480
Equation R^2	14.05%		21.23%		12.95%		20.00%
System R^2
Observations	5,027		2,013		3,014		2,013

This table presents the 3SLS regression estimates for COC model (Equation 3) of system model for the sample groups (aggregate, widely held firms, family firms, and family-controlled firms), where the coefficients are estimated by fitting the system equations (DIV model, LEV model, and COC model) for each sample groups:

Where DIV, LEV, and COC indicate the dividend payout ratio, debt ratio, cost of capital, respectively. FAM, CORP, and INS represent ownership proportion held by the family, corporate and institutional investors group, respectively. ROA, RISK, and SIZE specify profitability, operating risk, and firm size, respectively. TAX, INT, DivGR, and DebtGR symbolize tax ratio, interest ratio, dividend growth rate, and debt growth rate, respectively. Table 1 explains each variable.

***, **, * denote statistical significance at the 1%, 5% and 10% level, respectively.

Table

	DIV equation		LEV equation		COC equation
	Coefficient	z	Coefficient	z	Coefficient	z
Intercept	0.0053	1.2700	0.1283	1.0390	−1.1625	−1.2030
DIV/TA	—	—	−27.8808***	−18.1200	278.4230***	24.1300
DE	−0.0296***	−14.500	—	—	7.6162***	15.8000
COC	0.0036***	21.7400	0.1312***	8.9560	—	—
FAM	−6.37e^−05	−1.4590	−0.0008	−0.5836	0.0149	1.4600
CORP	−8.04e^−05*	−1.8520	−0.0026**	−2.0470	0.0175*	1.7300
INS	−0.0002***	−2.9040	−0.0049**	−2.5020	0.0425***	2.8940
ROA	0.0821***	8.1980	1.3474***	3.0510	−23.8542***	−7.5640
RISK	−0.0003*	−1.6880	−0.0101**	−2.1860	0.0548	1.4380
SIZE	0.0018***	3.4970	0.0688***	4.9460	−0.4286***	−3.4840
CAPEX	0.0006	0.6144	—	—	—	—
R&D	0.0095	0.6847	—	—	—	—
CR	1.47e^−05	0.1881	—	—	—	—
FATA	—	—	0.1319*	1.9510	—	—
SGR	—	—	0.0305	1.2660	—	—
MTB	—	—	−0.0266**	−2.1360	—	—
TAX	—	—	—	—	−0.0165	−0.0827
INT	—	—	—	—	−0.0223	−1.3600
DivGR	—	—	—	—	−0.5564***	−4.0900
DebtGR	—	—	—	—	−0.1034**	−2.4210
Equation R^2	41.99%		09.44%		39.80%
System R^2	38.12%
Observations	5,027

Table

	FY08-10		FY11-13		FY14-16
	Coefficient	z	Coefficient	z	Coefficient	z
Intercept	0.2607***	12.5700	0.2719***	7.2870	0.0404	0.4536
LEV	−0.4155***	−13.0700	−0.5159***	−8.3820	0.2348	1.4050
COC	0.0111***	19.4700	0.0153***	14.8900	0.0368***	11.2700
FAM	−0.0001	−0.6804	0.0004	1.1530	0.0018*	1.9230
CORP	0.0001	0.5672	0.0006	1.5680	0.0017*	1.8970
INS	0.0002	0.5815	0.0009*	1.6910	0.0044***	3.1980
ROA	−0.4192***	−9.6770	−0.5225***	−7.9730	−1.1822***	−6.6690
RISK	0.0007	0.8909	−0.0005	−0.4569	−0.0003	−0.0679
SIZE	−0.0056**	−2.0920	−0.0089*	−1.8600	−0.0220*	−1.8170
CAPEX	0.0017	0.1768	0.0097	0.3822	−0.0521	−0.6006
R&D	−0.0062	−0.0823	0.0503	0.3506	1.3431**	1.9710
CR	−0.0001	−0.4581	0.0023**	2.4260	0.0075**	2.0580
Equation R^2	37.15%		21.77%		6.34%
Observations	1371		1371		1371

Table

	FY08-10		FY11-13		FY14-16
	Coefficient	z	Coefficient	z	Coefficient	z
Intercept	0.4107***	7.0120	0.2558***	6.1600	−0.0950*	−1.9590
DIV	−1.4298***	−8.7240	−0.9105***	−12.1500	−0.0243	0.6940
COC	0.0159***	3.9240	0.0124***	3.5930	0.0322***	5.8520
FAM	−0.0002	−0.6169	0.0006*	1.7170	0.0018***	3.1440
CORP	−0.0002	−0.7025	0.0003	0.8924	0.0000	0.0922
INS	−0.0007	−1.4230	−0.0003	−0.6477	0.0000	0.0056
ROA	−0.8867***	−13.2500	−0.6052***	−9.2850	−1.1632***	−7.8650
RISK	−0.0010	−0.7793	−0.0024**	−2.3000	−0.0023	−1.1580
SIZE	0.0040	0.7801	0.0088**	2.1080	0.0260***	4.5590
FATA	0.1697***	6.3600	0.2155***	9.2740	0.3483***	10.0700
SGR	0.0231	1.1710	−0.0061	−0.3142	0.1744***	4.2070
MTB	0.0002	0.0283	−0.0057	−1.3010	−0.0265***	−6.5170
Equation R^2	33.67%		26.43%		14.40%
Observations	1371		1371		1371

Table

	FY08-10		FY11-13		FY14-16
	Coefficient	z	Coefficient	z	Coefficient	z
Intercept	−23.3506***	−10.8800	−18.1195***	−7.2690	−2.7509	−1.0170
DIV	89.6867***	19.9800	64.8553***	15.3200	29.6790***	6.6610
LEV	36.8085***	12.1000	31.9822***	8.4600	2.4423	0.4811
FAM	0.0127	0.7050	−0.0286	−1.3480	−0.0519*	−1.8330
CORP	−0.0108	−0.6118	−0.0392*	−1.9100	−0.0410	−1.4540
INS	−0.0168	−0.6404	−0.0694**	−2.2250	−0.0979**	−2.4320
ROA	37.7111***	10.8800	35.8457***	9.7350	37.4139***	7.7000
RISK	−0.0691	−0.9712	0.0019	0.0278	−0.0606	−0.4930
SIZE	0.5176**	2.1950	0.7053**	2.5150	0.3668	1.0290
TAX	−0.1157	−0.2264	−1.1859**	−1.9810	−0.1063	−0.0651
INT	0.0883	0.7325	−0.0504*	−1.6900	−0.6277	−1.0190
DivGR	−0.1434	−0.6670	−0.9250**	−2.4550	−1.3420	−1.0300
DebtGR	0.0431	0.5737	−0.3340**	−2.5560	−0.1290	−0.4666
Equation R^2	29.41%		15.63%		14.70%
Observations	1371		1371		1371

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