East Asian corporate governance: A test of the relation between capital structure and firm performance
Corporate governance theory predicts that leverage affects agency costs and thereby influences firm performance. Agency costs represent important problems in corporate governance in both financial and non-financial industries.Prior evidences have demonstrated an association between ownership structu...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
The Social Sciences Research Society
2011
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| Subjects: | |
| Online Access: | https://repo.uum.edu.my/id/eprint/7185/1/01ari_warokka.pdf |
| _version_ | 1825802084152246272 |
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| author | Warokka, Ari Herrera, Juan Jose Duran Abdullah, Haim Hilman |
| author_facet | Warokka, Ari Herrera, Juan Jose Duran Abdullah, Haim Hilman |
| author_sort | Warokka, Ari |
| collection | UUM |
| description | Corporate governance theory predicts that leverage affects agency costs and thereby influences firm performance. Agency costs represent important problems in corporate governance in both financial and non-financial industries.Prior evidences have demonstrated an association between ownership structures, capital structure, and firm performance.This study extends the literature by proposing a further link between capital structure and firm performance in term of post Asian Financial Crisis that is rarely investigated. Using an agency framework, the research argues that the distribution of equity ownership among corporate managers and external block holders has a significant relationship with leverage and firm performance, and there is reverse causality effect between ownership structure, capital structure, and firm performance.The paper tests two hypotheses that explore various aspects of this relationship.This study uses 532 East Asian companies, which are located in seven most affected countries when the crisis took place during period 1996-1997.The time frame of analysis is 2000-2001 period that is believed as a start of recovery period.Statistic methods used for testing the hypothesis are t-test and multivariate regression model.The empirical results indicate that the East Asian companies after the crisis apply the efficiency-risk argument.In analyzing the reverse causation of capital structure and corporate performance relation, the result confirms the incentive signaling approach, which debt can be used to signal the fact that firm has prospect and equity issues may be interpreted as a negative signal. |
| first_indexed | 2024-07-04T05:32:52Z |
| format | Article |
| id | uum-7185 |
| institution | Universiti Utara Malaysia |
| language | English |
| last_indexed | 2024-07-04T05:32:52Z |
| publishDate | 2011 |
| publisher | The Social Sciences Research Society |
| record_format | eprints |
| spelling | uum-71852016-04-24T08:32:34Z https://repo.uum.edu.my/id/eprint/7185/ East Asian corporate governance: A test of the relation between capital structure and firm performance Warokka, Ari Herrera, Juan Jose Duran Abdullah, Haim Hilman HG Finance Corporate governance theory predicts that leverage affects agency costs and thereby influences firm performance. Agency costs represent important problems in corporate governance in both financial and non-financial industries.Prior evidences have demonstrated an association between ownership structures, capital structure, and firm performance.This study extends the literature by proposing a further link between capital structure and firm performance in term of post Asian Financial Crisis that is rarely investigated. Using an agency framework, the research argues that the distribution of equity ownership among corporate managers and external block holders has a significant relationship with leverage and firm performance, and there is reverse causality effect between ownership structure, capital structure, and firm performance.The paper tests two hypotheses that explore various aspects of this relationship.This study uses 532 East Asian companies, which are located in seven most affected countries when the crisis took place during period 1996-1997.The time frame of analysis is 2000-2001 period that is believed as a start of recovery period.Statistic methods used for testing the hypothesis are t-test and multivariate regression model.The empirical results indicate that the East Asian companies after the crisis apply the efficiency-risk argument.In analyzing the reverse causation of capital structure and corporate performance relation, the result confirms the incentive signaling approach, which debt can be used to signal the fact that firm has prospect and equity issues may be interpreted as a negative signal. The Social Sciences Research Society 2011 Article PeerReviewed application/pdf en https://repo.uum.edu.my/id/eprint/7185/1/01ari_warokka.pdf Warokka, Ari and Herrera, Juan Jose Duran and Abdullah, Haim Hilman (2011) East Asian corporate governance: A test of the relation between capital structure and firm performance. International Journal of Economics and Finance Studies, 3 (2). pp. 1-10. ISSN 1309-8055 http://www.sobiad.org/eJOURNALS/journal_IJEF/archieves/2011_2/01ari_warokka.pdf |
| spellingShingle | HG Finance Warokka, Ari Herrera, Juan Jose Duran Abdullah, Haim Hilman East Asian corporate governance: A test of the relation between capital structure and firm performance |
| title | East Asian corporate governance: A test of the relation between capital structure and firm performance |
| title_full | East Asian corporate governance: A test of the relation between capital structure and firm performance |
| title_fullStr | East Asian corporate governance: A test of the relation between capital structure and firm performance |
| title_full_unstemmed | East Asian corporate governance: A test of the relation between capital structure and firm performance |
| title_short | East Asian corporate governance: A test of the relation between capital structure and firm performance |
| title_sort | east asian corporate governance a test of the relation between capital structure and firm performance |
| topic | HG Finance |
| url | https://repo.uum.edu.my/id/eprint/7185/1/01ari_warokka.pdf |
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