A survey on the relationship between ownership structure, debt policy and dividend policy in Tunisian stock exchange : Three stage least square simultaneous model approach

 
 
 
  • Abstract
  • Keywords
  • References
  • PDF
  • Abstract


    This research tests the efficiency of the debt policy, dividend policy and ownership structure as mechanism of resolution of agency conflicts between shareholders and managers due to the problem of overinvestment, in the limitation of the problem of the free cash flow. By estimating three stage least square simultaneous model and on the basis of a sample of 35 non-financial Tunisian listed companies selected for the period 20002009, our results are in favor of the theory of free cash flows of Jensen (1986) that stipulates that the debt policy represents the principal governance mechanism that can limit the risk of free cash flow. However, our empirical results do not confirm our hypothesis implies that the solution to reduce the level of free cash flow in the Tunisian firms with low growth opportunities is the use of policy dividends. It therefore appears that in the case of our sample, managers must settle their debts to creditors. They should thus allocate free cash flow to profitable projects. Thus, the debt reduces agency costs of free cash flow and present as a control mechanism which substitute dividend policy. Also, it is found that managerial ownership lowers the level of agency costs of free cash flow. However, the ownership concentration increases the risk of the free cash flow. Finally, regarding the impact of ownership structure on the payout ratio, our results support the idea that more risk aversion of the majority shareholders and their intention to expropriate minority shareholders through the extraction private benefits are the cause of a low dividend.


  • References


    1. Agrawal A. and Knoeber C.R. 1996. Firm Per-formance and Mechanisms to Control Agency Problems between Managers and Shareholders. Journal of Financial and Quantitative Analysis 31 (3). 377-397.
    2. Aggarwal, R., N.A. Kyaw and X. Zhao, 2011, "Financial Environment and the ValueLeverage Relation." Journal of Interna-tional Business and Economy (2011) 12(2): 1-26.
    3. Al-Deehani. T.M and Al-Saad.K.M 2007. Ownership Structure and Its Relationship with Capital Structure: An Empirical Study on the firms Listed in the Kuwait Stock Exchange. Arab Journal of Administrative Sciences Arab Journal of Administrative Sciences 14 (2)
    4. Al-khouri. R. 2006. Corporate governance and firms value in emerging markets: the case of Jordan. Advances in Financial Economics 11, 31-50.
    5. Andrs P., Lpez F.J., and Rodrguez J.A. 2005. Financial Decisions and Growth Oppor-tunities: A Spanish Firms Panel Data Analysis. Applied Financial Economics 15(6), 391- 407.
    6. Aoun. D and Heshmati. A. 2006. The Causal Relationship between Capital Structure and Cost of Capital: Evidence from ICT Compa-nies Listed at NASDAQ . The Ratio Institute Working Papers 87.
    7. Bennett. M. and Donnelly. R. 1993. The De-terminants of Capital Structure: Some UK Ev-idence. British Accounting Review. 25 1, 43-59.
    8. Berger P. Ofek E. and Yermach D. 1997. Managerial Entrenchment and Capital Struc-ture Decisions. Journal of Finance 52. (4), 1411-1438.
    9. Billett. M.T. et al. 2007. Growth Opportunities and the Choice of Leverage, Debt Maturity, and Covenants. The Journal of Finance LXII (2), 697-730.
    10. Booth. L. Aivazian. V. Demirguc-Kunt. A. and Maksimovic. V. 2001. Capital structure in developing countries. Journal of Finance 56, 87-130 Brickley J. Lease R. and Smith C. 1988; Ownership structure and voting on a takeover amendments. Journal of financial economics 20, 267-291.
    11. Buettner. Overesch. Schreiber. Wamser and George. 2009. Taxation and capital structure choice: Evidence from a panel of German multinationals. Economics Letters. 105 (3), 309-311
    12. Cadoret. B. Martin. H and Tanguy. 2004. conomtrie applique: mthodes, applications. corrigs. De Boeck Universit.452 pages
    13. Cai K. R. Fairchild. And Guney. Y. 2008. Debt maturity structure of Chinese companies. Pacific-Basin Finance Journal 16, 268-297
    14. Chang. C. Lee. Alice C.and Lee. Cheng F. 2009. Determinants of capital structure choice: A structural equation modeling approach. The Quarterly Review of Economics and Finance 49, 197213.
    15. Chen. J. J. 2004. Determinants of capital structure of Chinese-listed companies. Journal of Business Research 57, 1341 1351. Chen. X. and Yur-Austin. J. 2007. Re-measuring agency costs: The effectiveness of blockholders. The Quarterly Review of Eco-nomics and Finance 47(5), 588-601.
    16. Ciceksever. B. J. Kale. And H. Ryan. 2006. Corporate governance, debt, and activist institutions. Georgia State University working paper.
    17. De Jong A. and Dijk R.V. 2007. Determinants of Leverage and Agency Problems: A Regression Approach with Survey Data. European Journal of Finance 13(6), 565-593.
    18. De Jong.A. Kabir.T.T and Nguyen. R. 2008. Capital structure around the world: The roles of firm- and country-specific determinants. Journal of Banking and Finance 32( 9), 1954-1969
    19. De Miguel. A. and Pindado J. 2001. Determinants of capital structure: new evidence from Spanish panel data. Journal of Corporate Finance 7, 77-99
    20. Del Brio E. Perote J. and Pindado J. 2003. Measuring the Impact of Corporate Investment Announcements on Share Prices: the Spanish Experience. Journal of Business. Finance and Accounting 30,715-747.
    21. Delcoure N. 2007. The determinants of capital structure in transitional economies. International Review of Economics and Finance. 16, 400415.
    22. Demsetz.H. 1983. The structure of ownership and the theory of the firm. Journal of Law and Economics 2 (June), 375-390.
    23. Demsetz.H. and Lehn K. 1985. The structure of corporate ownership: causes and consequences. Journal of Political Economy 93(6), 1155-1177.
    24. Demsetz.H. and Vilallonga B. 2001. Ownership structure and corporate performance. Journal of Corporate Finance 7(3), 209-233.
    25. D'Mello.R. and Miranda.M. 2010. Long-term debt and overinvestment agency problem. Journal of Banking and Finance 34, 324-335
    26. Doukas. J.A. C. Kim. And C. Pantzalis. 2005. Security Analysis, Agency Costs and Firm Characteristics. International Review of Financial Analysis 14(5), 493-507
    27. Driffield.N.L. and Pal .S. 2007. How does ownership structure affect capital structure and firm performance? Recent evidence from East Asia. Economics of Transition 15 (3), 535-573
    28. Drobetz W and Fix R. 2005. What are the determinants of the capital structure? Some evidence for Switzerland. Revue Suisse d'Economie et de statistique 1(mars), 71-114.
    29. Duggal R. and Millar J.A.1999. Institutional ownership and firm performance: The case of bidder returns. Journal of Corporate Finance 5.
    30. Ezeoha. A.E. 2008. Firm size and corporate financial leverage choice in a developing economy. The Journal of Risk Finance. 94. 351-364.
    31. Faccio M. and Lasfer M.A. 2002. Institutional Shareholders and Corporate Governance: The Case of U.K. Pension Funds In: J. McCahery. P. Moerland. T. Raaijmakers. And L. Renneboog. Eds. Corporate Governance Regimes: Convergence and Diversity. Oxford University Press.
    32. Fattouh. Scaramozzino and Harris 2005. Capital structure in South Korea: a quantile regression approach. Journal of Development Economics 761, 231-250.
    33. Flannery. M.J. and K.P. Rangan. 2006. Partial adjustment toward target capital structures. Journal of Financial Economics79(3) 469-506
    34. Fluck. Z. D. Holtz-Eakin. And H.S. Rosen. 2000. Where does the money come from? The financing of small entrepreneurial enterprises, New York University Working paper.
    35. Frank. M. andGoyal. V. 2000. Testing the pecking order theory of capital structure. Journal of Financial Economics 67( 2), 217-248
    36. Garvey G.T. and G. Hanka. 1999. Capital structure and corporate control: the effect of anti-takeover statutes on firm leverage. Journal of finance 54 (2), 519-546
    37. Ghosh. S. 2007. Leverage, managerial monitoring and firm valuation: A simultaneous equation approach. Research in Business 61, 84-98.
    38. Graham. J.R. and Tucker. A.L. 2006. Tax shelters and corporate debt policy. Journal of Financial Economics 81, 563-594.
    39. Grossman. S. J. And O. D. Hart 1982. Corporate Financial Structure and Managerial Incentives. In: The Economics of Information and Uncertainty. Ed. Par J. J. McCall. Chicago: The University of Chicago Press, 123-155
    40. Guizani and Kouki (2012), "Ownership-Control Discrepancy and Dividend Policy: Ev-idence from Tunisia, International Business Research, Vol 5, No 1. Gul F.A. Jaggi B. 1999. An analysis of joint effects of investment opportunity set. Free cash flow and size on corporate debt policy. Review of Quantitative Finance and Accounting 12(4), 371-381.
    41. Halov N and Heider.F. 2005. Capital Structure, asymmetric information and risk. EFA 2004 MAASTR?CHT, 1-56.
    42. Harada & Nguyen, 2011. "Ownership concentration and dividend policy in Japan," Managerial Finance, Emerald Group Publish-ing, vol. 37(4) Harris M. and Raviv.A. 1991. The theory of capital structure. Journal of Finance 46(1), 297-355
    43. Henry. 2010. Agency costs, ownership structure and corporate governance compliance: A private contracting perspective. Pacific-Basin Finance Journal 181, 24-46.
    44. Hosono 2003. Growth Opportunities. Collateral and Debt Structure: The Case of the Japanese Machine Manufacturing Firms. Japan and the World Economy 15(3), 275-97.
    45. Hovakimian 2006. Are Observed Capital Structures Determined by Equity Market Tim-ing? Journal of Financial and Quantitative Analysis 41 (1), 221-243
    46. Huang. G. and F.M. Song. 2006. The Determinants of Capital Structure: Evidence from China. China Economic Review 17, 14-36
    47. Hudson M.R. Parrino R. and Starks L. 1998. International monitoring mechanisms and CEO turnover: A long term perspective. Unpublished manuscript University of Pennsylvania.
    48. Imam. M and Malik. M 2007. Firm Perfor-mance and Corporate Governance through Ownership structure. International Review of Business Research Papers 3(4), 88-110
    49. Jensen. M. and Meckling. W. 1976. Theory of the firm: Managerial behavior, agency costs and capital structure. Journal of Financial Economics 3, 305-360
    50. Jensen. M. 1986. Agency costs of free cash flow, corporate finance and takeovers. American Economic Review 76, 323-329
    51. Karadeniz. S. Y. Kandir. M. Balcilar and Y. B. Onal. 2009. Determinants of capital structure: evidence from Turkish lodging companies. International Journal of Contemporary Hospitality Management 215, 594-609
    52. Kim. H. Heshmati. A. and Aoun. D. 2006. Dynamics of capital structure: the case of Ko-rean listed manufacturing companies. Asian Economic Journal 203, 275-302.
    53. Kouki M. & Guizani M. (2009), Ownership Structure and Dividend Policy Evidence from the Tunisian Stock Market, European Journal of Scientific Research, Vol.25, No.1, and pp: 42-53.
    54. Kremp E. and Stoss E. 2001. Lendettement des entreprises industrielles franaises ET allemandes: des lutions distinctes malgr des dterminants proches. Economie ET Statistique n1/2.
    55. La Rocca. La Rocca and Cariol 2007. Overinvestment and Underinvestment Problems: Determining Factors: Consequences and Solutions. Corporate Ownership and Control 5 (1), 79-95
    56. Lambrecht B. M.and Myers S. C. (2010)A Lintner model of dividends and managerial, NBER working paper 16210, forthcoming Journal of Finance.
    57. Lang L.H.P. Ofek O. and Stulz R.M. 1996. Leverage, Investment. And Firm Growth. Journal of Financial Economics 40, 3-29.
    58. McKnight and Weir. 2009. Agency costs, corporate governance mechanisms and ownership structure in large UK publicly quoted companies: A panel data analysis. The Quarterly Review of Economics and Finance 49, 139158.
    59. Michaely, Roni and Michael R. Roberts, 2012, Corporate Dividend Policies: Lessons from Private Firms, Review of Financial Studies 25, 711-746.
    60. Miller. Merton H. 1977. Debt and Taxes. Journal of Finance, 261-275.
    61. Miller. Merton H. 1991. Leverage. Journal of Finance 46 (2), 479-488.
    62. Modigliani F. and M. Miller 1958. The cost of capital, corporation finance and the theory of investment. American Economic Review, 261-297.
    63. Modigliani F. and M. Miller 1963. Corporate Income Taxes and the cost of capital. American Economic Review, 433-443.
    64. Myers. Stewart C. 1977. Determinants of Corporate Borrowing. Journal of Financial Economics 5(2), 147-175
    65. N. Eriotis. V. Dimitrios and V. N. Zoe. How firm characteristics affect capital structure: an empirical study. Managerial Finance 335, 321-331. Nekhili M. Wali A. and Chebbi D. 2009. Free cash flow, gouvernance ET politique financire des entreprises franaises. Finance Contrle Stratgie 12 (1), 5-31.
    66. Pao. 2008. A comparison of neural network and multiple regression analysis in modeling capital structure Expert Systems with Applications 35, 720727
    67. Pindado J. and De la Torre C. 2005. A Complementary Aroach to the Financial and Strategy Views of Capital Structure: Theory and Evidence from the Ownership Structure. SSRN working paper.
    68. Poulain-Rehm T. 2005. Limpact de laffectation du free cash flow sur la cration de valeur actionnariale: le cas de la politique dendettement et de dividendes des entreprises franaises cotes. Revue Finance. Contrle. Stratgie 8 (4), 205-238.
    69. Pound J. 1988; Proxy contests and the efficiency of shareholder oversight. Journal of financial economics 20, 237-266.
    70. Rajan R.G. and Zingales. L. 1995. What do we know about capital structure? Some evidence from international data Journal of Finance 50(5), 1421-1460
    71. Sheikh and Wang 2010. Financing Behavior of Textile Firms in Pakistan. International Journal of Innovation. Management and Technology 1 (2), 130-135.
    72. Shyam-Sunder L. and S.C Myers 1999. Testing static tradeoff against pecking order models of capital structure. Journal of Financial Economics 51, 219-244.
    73. Singh M. and Davidson III W.N. 2003. Agency costs, ownership structure and corporate governance mechanism. Journal of Banking and Finance 27, 793-816.
    74. Solh. M. 2000. Fonds de pension ET politique d'investissement long terme des entreprises. thse de doctorat en sciences de gestion. Universit de Paris X Nanterre
    75. Stulz. 1990. Managerial Discretion and Optimal Financing Policies. Journal of Financial Economics 26, 3-27
    76. Taggart. 1977. A model of corporate financing decisions. Journal of Finance 32, 1467-1484
    77. Tang. C.H. and Jang. S.C. 2007. Revisit to the determinants of capital structure: A comparison between lodging firms and software firms. International Journal of Hospitality Management 261, 175-187.
    78. Titman and Wessels 1988. The determinants of capital structure choice. Journal of Finance 43, 1-19.
    79. Vilasuso. J and Minkler. A. 2001. Agency costs, asset specificity, and the capital struc-ture of the firm. Journal of Economic Behavior and Organization 441, 55-69.
    80. Wiwattanakantang and Yupana. 1999. An empirical study on the determinants of the capital structure of Thai firms . Pacific-Basin Finance Journal 73(4), 371-403.
    81. Wu and Yue 2009. Corporate tax, capital structure. and the accessibility of bank loans: Evidence from China. Journal of Banking and Finance 33(1), 30-38
    82. Wu L. 2004. The Impact of Ownership Structure on Debt Financing of Japanese Firms with the Agency Cost of Free cash flow. EFMA Meetings Paper.
    83. Zhang. H and Li. S. 2008. The Impact of Capital Structure on Agency Costs: Evidence from UK Public Companies. Proceedings of the 16th Annual Conference on Pacific Basin Finance Economics Accounting Management PBFEAM Conference.
    84. Zou.H. and J. Z. Xiao. 2006. The financing behavior of listed Chinese firms. The British Accounting Review 38, 239-258.
    85. Zwiebel J. 1996. Dynamic Capital Structure under Managerial Entrenchment. American Economic Review 86 (5), 1197-1215.

 

View

Download

Article ID: 1447
 
DOI: 10.14419/ijaes.v2i1.1447




Copyright © 2012-2015 Science Publishing Corporation Inc. All rights reserved.