The Impact of Institution Ownership on Firm Leverage of Non-Financial Firms Pakistan Stock Exchange (PSE)
DOI:
https://doi.org/10.61506/Keywords:
Institutional Ownership, Leverage, Random Effect Model, Pakistan Stock ExchangeAbstract
This study examines the influence of ownership structures on firm leverage and value among non-financial firms listed on the Pakistan Stock Exchange (PSE). Moreover, this study aims to offer actionable insights for investors to select utmost effective ownership structures for making good strategic investment decisions. The empirical analysis of this study examines (20) non-financial firms Pakistan Stock Exchange (PSE) over 2015-2018. This research employs panel data techniques such as chow test, Breusch-Pagan test, and Hausman test, Pooled Ordinary Least Squares (OLS) elect suitable econometric model. Variables of this study leverage dependent variable, institutional ownership independent variable and control variables are managerial ownership, ownership concentration, female in board, MTB ratio, firm size and firm age. The empirical analysis shows that institutional ownership is inverse significant associated with firm leverage. The control variables are ownership concentration, audit committee, and negative and insignificant association with firm leverage. No. of board, MTB, and Firm Size have a negative significant association with firm leverage. Whereas, Non-Executive Director, Audit Committee Non-Executive Director, HR Committee, HR Non-Executive Committee and Firm age have positive insignificant association with firm leverage. The findings of this study highlighted the crucial role of strong corporate governance in sustaining lower leverage ratios. Effective corporate structures, noticeable by significant institutional ownership and active governance, assist to reduce agency conflicts and improve firm value.
References
Abor, J. (2005). The effect of capital structure on profitability: Empirical analysis of listed firms in Ghana. Journal of Risk Finance, 6(5), 438-445.
Aghion, P., & Tirole, J. (1997). Formal and real authority in organizations. Journal of Political Economy, 105(1), 1-29.
Ahmad, M., Baek, N. W., Kim, D. W., & Shah, B. A. (2019). The impact of institutional ownership on firms' performance: Evidence from Pakistan. 아시아연구, 22(1), 27-48.
Ali, A., Shah, A., & Jan, F. A. (2015). Leverage, ownership structure and firm performance: Evidence from Karachi Stock Exchange. Journal of Management Info, 2(2), 1-7.
Al-Najjar, B., & Hussainey, K. (2011). Revisiting the capital structure puzzle: UK evidence. Journal of Risk Finance, 12(4), 329-338.
Bushee, B. J. (1998). The influence of institutional investors on myopic R&D investment behavior. Accounting Review, 73(3), 305-334.
Chidambaran, N. K., & John, K. (2010). Managerial risk-taking incentives and firm value. Journal of Financial Economics, 55(1), 43-66.
Fama, E. F., & French, K. R. (1992). The cross-section of expected stock returns. Journal of Finance, 47(2), 427-465.
Gillan, S. L., & Starks, L. T. (2000). Corporate governance proposals and shareholder activism: The role of institutional investors. Journal of Financial Economics, 57(2), 275-305.
Gillan, S. L., & Starks, L. T. (2000). Corporate governance proposals and shareholder activism: The role of institutional investors. Journal of Financial Economics, 57(2), 275-305.
Greene, W. H. (2011). Econometric analysis (7th ed.). Prentice Hall.
Hayat, M., Wang, M., & Ma, J. (2016). The Impact of Ownership Structure on Corporate Debt Financing: Evidence from the Manufacturing Sector of Pakistan. The International Journal of Management Theory and Practices, 17, 92-109.
Hitt, M. A., Hoskisson, R. E., & Harrison, J. S. (1991). Effects of acquisitions on R&D inputs and outputs. Academy of Management Journal, 34(3), 544-558.
Ilmas, F., Tahir, S., & Asrar-ul-Haq, M. (2018). Ownership structure and debt structure as determinants of discretionary accruals: An empirical study of Pakistan. Cogent Economics & Finance, 6(1), 1439254.
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323-329.
Jensen, M. C. (1989). The eclipse of the public corporation. Harvard Business Review, 67(5), 61-74.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Margaritis, D., & Psillaki, M. (2010). Capital structure, equity ownership, and firm performance. Journal of Banking and Finance, 34(3), 621-632.
Marsh, P. (1982). The choice between equity and debt: An empirical study. Journal of Finance, 37(1), 121-144.
Modigliani, F., & Miller, M. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3), 261-297.
Rajan, R. G., & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. Journal of Finance, 50(5), 1421-1460.
Sadaf, R., Oláh, J., Popp, J., & Máté, D. (2019). Institutional ownership and simultaneity of strategic financial decisions: An empirical analysis in the case of Pakistan Stock Exchange. Journal of Business and Management Review, 8(3), 12-26.
Setyabudi, T. (2021). The effect of institutional ownership, leverage, and profitability on firm value with dividend policy as an intervening variable. Journal of Business and Management Review, 2(7), 457-469.
Sheikh, N. A., & Wang, Z. (2011). Determinants of capital structure: An empirical study of firms in the manufacturing industry of Pakistan. Managerial Finance, 37(2), 117-133.
Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. Journal of Political Economy, 94(3), 461-488.
Strong, N., & Xu, X. G. (1997). Explaining the cross-section of UK expected stock returns. British Accounting Review, 29(1), 1-23.
Walsh, E. J., & Ryan, J. (1997). Agency and tax explanations of security issuance decisions. Journal of Business Finance & Accounting, 24(7-8), 941-959.
Krishnan, V. S., & Moyer, R. C. (1997). Performance, capital structure and home country: An analysis of Asian corporations. Global finance journal, 8(1), 129-143.
Rao, N. V., Al-Yahyaee, K. H. M., & Syed, L. A. (2007). Capital structure and financial performance: evidence from Oman. Indian Journal of Economics and Business, 6(1), 1.
Baltagi, B. H., & Baltagi, B. H. (2008). Econometric analysis of panel data (Vol. 4, pp. 135-145). Chichester: Wiley.
Zhamg, L. (2013). The impact of ownership structure on capital structure: evidence from listed firms in China (Master's thesis, University of Twente).
Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. the Journal of Finance, 48(3), 831-880.
Frank, M. Z., & Goyal, V. K. (2007). Corporate leverage: How much do managers really matter? Available at SSRN 971082.
Himmelberg, C. P., Hubbard, R. G., & Palia, D. (1999). Understanding the determinants of managerial ownership and the link between ownership and performance. Journal of financial economics, 53(3), 353-384.