Capital structure, equity ownership and firm performance

By Dimitris Margaritis, Maria Psillaki. 2010

936 citations recorded by the source corpus.

This paper investigates the relationship between capital structure, ownership structure and firm performance using a sample of French manufacturing firms. We employ non-parametric data envelopment analysis (DEA) methods to empirically construct the industry's 'best practice' frontier and measure firm efficiency as the distance from that frontier. Using these performance measures we examine if more efficient firms choose more or less debt in their capital structure. We summarize the contrasting effects of efficiency on capital structure in terms of two competing hypotheses: the efficiency-risk and franchise-value hypotheses. Using quantile regressions we test the effect of efficiency on leverage and thus the empirical validity of the two competing hypotheses across different capital structure choices. We also test the direct relationship from leverage to efficiency stipulated by the Jensen and Meckling (1976) agency cost model. Throughout this analysis we consider the role of ownership structure and type on capital structure and firm performance.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/acd3bc0b9768764f5b796b39fb22d7a395f723d1

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Citations in the corpus

Corporate governance, capital structure and firm performance: Evidence from Thailand (2017, background): “…corporate governance on firm performance in developing economies (e.g., Connelly et al., 2012; Elsayed, 2007; Jackling and Johl, 2009) and to those addressing the similar issue in the context of advanced economies (e.g., Bhagat and Bolton, 2008; Erhardt et al., 2003; Margaritis and Psillaki, 2010).”
Capital structure decisions in family firms: empirical evidence from a bank-based economy (2011, neutral): “In contract to these two studies, Margaritis and Psillaki (2010) find that French family firms in the manufacturing industry have significantly lower leverage ratios.”
Capital Structure and Corporate Performance: Empirical Study on the Public Jordanian Shareholdings Firms Listed in Amman Stock Market (2012, neutral): “The roots of capital structure theory refers to more than fifty decades since the seminal work which presented by Modigliani and Miller 1958(thereafter MM) .They proved, under restrictive assumptions (no taxes and transactions costs) that cost of capital does not affect on capital structure ,particu”
The Effects of Market Competition, Capital Structure, and CEO Duality on Firm Performance: A Mediation Analysis by Incorporating the GMM Model Technique (2020, background): “For instance, advocates of the agency theory suggest that the capital structure of a firm negatively impacts financial performance [57,58].”
Ownership Structure and Firm Performance: Evidence from Vietnamese Listed Firms (2016, background): “It is seen that firms with high profitability are high performing, and previous studies find a positive relationship between profitability and firm performance (Gurbuz & Aybars, 2010; Margaritis & Psillaki, 2010; Phung & Le, 2013).”
Influence of Capital Structure on Firm Performance: Evidence from Bangladesh (2014, background): “Margaritis and Psillaki (2010) observed a significant positive relation between leverage and firm’s performance.”
Capital structure, product market competition and firm performance: Evidence from South Africa (2013, neutral): “As noted in Morck et al. (1998), such a system of ownership leads to an extreme level of expropriation of the minority shareholders since significant control rights can be exercised with little equity stake.”
The effect of firm size on the leverage–performance relationship during the financial crisis of 2007–2009 (2015, neutral): “Motivated by recent studies on the leverage–performance relationship, such as that of Margaritis and Psillaki (2010), who show that financial leverage has a positive effect on firm performance, Cai and Zhang (2011), who show that a change in financial leverage is related to future operating…”