Growth Opportunities as Moderators of the Mechanisms of Corporate Control: A Study for East Asian Firms

28 Pages Posted: 5 Dec 2013

See all articles by Félix J. López-Iturriaga

Félix J. López-Iturriaga

University of Valladolid - Department of Financial Economics and Accounting; National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy

Juan Antonio Rodríguez-Sanz

University of Valladolid - Department of Economics and Business Administration

Date Written: December 4, 2013

Abstract

We study whether the corporate growth opportunities result in an asymmetric effect of the corporate financial leverage and the corporate dividend policies on the value of the firms from eleven East Asian countries: Hong Kong, Indonesia, India, Japan, South Korea, Sri Lanka, Malaysia, Philippines, Singapore, Thailand, and Taiwan. Our results corroborate the dual role of the corporate debt and the dividends. When firms lack growth opportunities, they alleviate the problem of overinvestment. But, when firms have growth opportunities, they exacerbate the problem of underinvestment. Our results also suggest that the legal and institutional environment can module this effect. Better legal protection of investors reduces the disciplinary role of financial decisions. According with the importance of capital markets, we find that debt and dividends are less influential in countries with more active capital markets. Finally, there are some firm-specific features, such as the nature of the controlling shareholders (e.g., the ownership concentration and the identity of these shareholders), which modify the relevance of debt and dividends in Asian firms.

Keywords: capital structure, dividends, East Asia, growth opportunities, Law & Finance approach, ownership structure

JEL Classification: G32, G35

Suggested Citation

Lopez-Iturriaga, Felix Javier and Rodríguez-Sanz, Juan Antonio, Growth Opportunities as Moderators of the Mechanisms of Corporate Control: A Study for East Asian Firms (December 4, 2013). Available at SSRN: https://ssrn.com/abstract=2363357 or http://dx.doi.org/10.2139/ssrn.2363357

Felix Javier Lopez-Iturriaga (Contact Author)

University of Valladolid - Department of Financial Economics and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34 983 184 395 (Phone)
+34 983 183830 (Fax)

HOME PAGE: http://www2.eco.uva.es/flopez

National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy ( email )

Lebedeva,27
Perm, Perm 614070
Russia

Juan Antonio Rodríguez-Sanz

University of Valladolid - Department of Economics and Business Administration ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34-983-423000 Ext. 24395 (Phone)
+34-983-423333 (Fax)

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