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

55 Pages Posted: 19 Jan 2018 Last revised: 24 Aug 2018

See all articles by Mohsin Khawaja

Mohsin Khawaja

La Trobe University, Students

Ishaq Bhatti

La Trobe University - School of Economics and Finance; Financial Research Network (FIRN)

Dawood Ashraf

Islamic Development Bank - Islamic Research and Training Institute

Darren Henry

La Trobe University - Department of Economics and Finance; Financial Research Network (FIRN)

Date Written: January 15, 2018

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

Suggested Citation

Khawaja, Mohsin and Bhatti, Ishaq and Ashraf, Dawood and Henry, Darren, The Role of Ownership and Governance Structure in Raising Capital: An International Study (January 15, 2018). 9th Conference on Financial Markets and Corporate Governance (FMCG) 2018. Available at SSRN: https://ssrn.com/abstract=3102108 or http://dx.doi.org/10.2139/ssrn.3102108

Mohsin Khawaja (Contact Author)

La Trobe University, Students ( email )

Wodonga
Australia

Ishaq Bhatti

La Trobe University - School of Economics and Finance ( email )

Bundoora
Melbourne, 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Dawood Ashraf

Islamic Development Bank - Islamic Research and Training Institute ( email )

P.O. Box. 9201
Jeddah, 21413
Saudi Arabia

Darren Henry

La Trobe University - Department of Economics and Finance ( email )

Department of Economics and Finance
La Trobe Business School
Bundoora 3086 Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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