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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...

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Main Authors: Warokka, Ari, Herrera, Juan Jose Duran, Abdullah, Haim Hilman
Format: Article
Language:English
Published: The Social Sciences Research Society 2011
Subjects:
HG Finance
Online Access:http://repo.uum.edu.my/7185/1/01ari_warokka.pdf
http://repo.uum.edu.my/7185/
http://www.sobiad.org/eJOURNALS/journal_IJEF/archieves/2011_2/01ari_warokka.pdf
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spelling my.uum.repo.71852016-04-24T08:32:34Z http://repo.uum.edu.my/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 http://repo.uum.edu.my/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
institution Universiti Utara Malaysia
building UUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Utara Malaysia
content_source UUM Institutionali Repository
url_provider http://repo.uum.edu.my/
language English
topic HG Finance
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
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.
format Article
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
title 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_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_sort east asian corporate governance: a test of the relation between capital structure and firm performance
publisher The Social Sciences Research Society
publishDate 2011
url http://repo.uum.edu.my/7185/1/01ari_warokka.pdf
http://repo.uum.edu.my/7185/
http://www.sobiad.org/eJOURNALS/journal_IJEF/archieves/2011_2/01ari_warokka.pdf
_version_ 1644279469454655488
score 13.211869

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