The Role of Ownership and Governance Structure in Raising Capital: An International Study

Abstract

This paper investigates whether the ownership and the governance structure of firms affects the decision to raise funds, and subsequently the choice of the capital instrument. We hypothesize that the choice of capital instrument depends on the relative riskiness of the source of funds ranging from equity to debt finance including bonds, sukuk or bank loans. Using a sample from 2000-2015 of 1,565 firms from countries including Malaysia, Indonesia, Singapore and Pakistan, we find the evidence that ownership concentration is associated with higher control motives and restricts equity financing to avoid ownership dilution. CEO-Chair duality also coincides with fewer instances of raising external funds and relative risk sharing. On the other hand, lower information asymmetry, observed by analyst coverage and firm size, generally accompanies more issuances of debt-like products, such as bank loans and bonds. Finally, some of the prominent financial ratios such as market-to-book value, leverage and macroeconomic factors significantly drive firms in their decision to raise funds and share risk.

Keywords: Security issuance, ownership, governance

JEL Classification: G30, G32, G39