The idea that the general characteristics of a firm’s ownership structure can affect performance has achieved considerable attention and related research brought forward relatively consistent empirical evidence e.g. on the positive impact of managerial ownership on firm performance. However, the evidence on the relation between ownership and capital structure is less consistent and numerous, although there are good reasons to believe that there may be such a relationship.
Since the capital structure irrelevance propositions of MODIGLIANI/MILLER economists have devoted considerable time to studying cross-sectional and time-series variations in capital structure. More recent work following the seminal contribution by JENSEN/MECKLING has employed an agency theory perspective in the search for an explanation of capital structure variations. With this managerial perspective capital structure is not only explained by variations in internal and external contextual factors of the firm, but also by the values, goals, preferences and desires of managers. Corporate financing decisions are influenced by managers’ incentives and the incentives for managers to act opportunistically can be influenced by the ownership structure of the firm.
However, most empirical work analyzing a firm’s capital structure in cross-sectional and time-series studies ignores the equity ownership structure as a possible explanatory variable. This can be partly explained by problems associated with the availability of ownership data, when compared to readily available accounting and market data on other relevant variables. Notwithstanding, it entails a problem of model misspecification as omitting a relevant variable may cause misleading empirical conclusions. Additionally, the problem arises that the studies taking ownership structure into account do not bring forward consistent results. They find contradictory evidence without any side clearly dominating the discussion, neither theoretically nor empirically.
The objective of this thesis is to contribute to the empirical debate of those two problems by investigating whether the structure of equity ownership can help in explaining cross-sectional variation in capital structure for the case of Germany. Since corporate managers and external block holders are two groups who have considerable influence on a firm’s decisions, this thesis focuses on the effects of managerial share ownership and external block ownership on capital structure.
Table of Contents
- 1 INTRODUCTION
- 1.1 Problem and Objective of the Thesis
- 1.2 Organization of the Thesis
- 2 THE RELATIONSHIP BETWEEN CAPITAL STRUCTURE, MANAGEMENT OWNERSHIP AND EXTERNAL BLOCK HOLDERS – PRIOR RESEARCH AND HYPOTHESES
- 2.1 Capital Structure and Management Ownership
- 2.1.1 Incentive-Alignment Hypothesis
- 2.1.2 Signaling and Corporate Control Considerations
- 2.1.3 Management Entrenchment Hypothesis
- 2.1.4 Non-Linearity and Hypothesis Development
- 2.2 Capital Structure and External Block Holders
- 2.3 Interaction of Management Ownership and External Block Holders
- 2.1 Capital Structure and Management Ownership
- 3 ECONOMETRIC ANALYSIS OF OWNERSHIP AND CAPITAL STRUCTURE
- 3.1 Data and Model Specification
- 3.1.1 Sample Selection
- 3.1.2 Ownership Structure Variables
- 3.1.3 Measures of Capital Structure and Univariate Analysis
- 3.1.4 Additional Capital Structure Determinants
- 3.1.5 Variable Overview and Correlation Analysis
- 3.1.6 Multivariate Regression Models
- 3.2 Empirical Results and Theoretical Implications
- 3.2.1 Capital Structure and Management Ownership
- 3.2.2 Capital Structure and External Block Holders
- 3.2.3 Interaction of Management Ownership and External Block Holders
- 3.3 Robustness of Results
- 3.3.1 Multicollinearity, Heteroskedasticity and Non-Normality
- 3.3.2 Alternative Variable Definitions
- 3.3.3 Exclusion of Observations
- 3.1 Data and Model Specification
- 4 CONCLUSION
- 4.1 Summary and Critique
- 4.2 Implications for Further Research
Objectives and Key Themes
This thesis empirically investigates the relationship between ownership structure and capital structure, focusing specifically on DAX companies. The main objective is to analyze how different ownership structures (management ownership and external block holders) influence a firm's choice of capital structure (debt-to-equity ratio).
- The impact of management ownership on capital structure
- The influence of external block holders on capital structure
- The interaction effects between management ownership and external block holders on capital structure
- Econometric analysis and model specification for assessing these relationships
- Robustness checks of the empirical findings
Chapter Summaries
1 INTRODUCTION: This introductory chapter sets the stage for the thesis, outlining the research problem and objectives. It highlights the significance of understanding the relationship between ownership structure and capital structure, particularly within the context of DAX companies. The chapter also provides a roadmap for the thesis, outlining the structure and organization of the subsequent chapters.
2 THE RELATIONSHIP BETWEEN CAPITAL STRUCTURE, MANAGEMENT OWNERSHIP AND EXTERNAL BLOCK HOLDERS – PRIOR RESEARCH AND HYPOTHESES: This chapter reviews the existing literature on the relationship between capital structure, management ownership, and external block holders. It examines various theoretical perspectives, including the incentive-alignment hypothesis, signaling theory, management entrenchment hypothesis, and the role of non-linearity. The chapter culminates in the development of testable hypotheses that guide the empirical analysis in subsequent chapters. The review synthesizes existing research on managerial ownership and its impact on debt levels, alongside the impact of external blockholders. It highlights inconsistencies and gaps in the existing literature that this thesis aims to address.
3 ECONOMETRIC ANALYSIS OF OWNERSHIP AND CAPITAL STRUCTURE: This chapter details the empirical analysis undertaken to test the hypotheses formulated in the previous chapter. It describes the sample selection process, focusing on DAX companies, and the definition and measurement of key variables, including ownership structure (management ownership and external block holders) and capital structure (debt-to-equity ratio). The chapter presents the econometric models employed and discusses the results obtained. It meticulously examines the relationships between different forms of ownership and the resulting capital structure, carefully considering potential confounding factors. Different econometric methods are utilized and sensitivity analyses are conducted to ensure the robustness of the findings. The significance and implications of the regression results for each variable are fully explored.
Keywords
Capital structure, ownership structure, management ownership, external block holders, DAX companies, debt-to-equity ratio, agency costs, incentive alignment, signaling, corporate governance, econometric analysis, regression analysis.
Frequently Asked Questions: Analysis of Ownership Structure and Capital Structure in DAX Companies
What is the main topic of this thesis?
This thesis empirically investigates the relationship between ownership structure and capital structure in DAX companies. It focuses on how management ownership and external blockholders influence a firm's debt-to-equity ratio.
What are the key objectives of this research?
The main objective is to analyze the impact of different ownership structures (management ownership and external block holders) on a firm's capital structure choice. Specific objectives include examining the individual impacts of management ownership and external blockholders, analyzing the interaction between these ownership types, and performing robust econometric analysis to assess these relationships.
What are the key themes explored in this thesis?
Key themes include the incentive-alignment hypothesis, signaling theory, management entrenchment hypothesis, agency costs, corporate governance, and the application of econometric methods (regression analysis) to analyze the relationships between ownership structure and capital structure.
What is the structure of the thesis?
The thesis is structured into four chapters. Chapter 1 introduces the research problem and objectives. Chapter 2 reviews existing literature and formulates hypotheses. Chapter 3 presents the econometric analysis, including data, model specification, empirical results, and robustness checks. Chapter 4 summarizes the findings, offers a critique, and suggests avenues for future research.
What data and methods are used in the empirical analysis?
The empirical analysis focuses on DAX companies. It uses econometric models (regression analysis) to examine the relationship between ownership structure (measured by management ownership and external blockholder ownership) and capital structure (measured by the debt-to-equity ratio). The analysis includes detailed variable definitions, correlation analysis, multivariate regression models, and robustness checks for multicollinearity, heteroskedasticity, non-normality, and alternative variable definitions.
What are the key findings of the empirical analysis (Chapter 3)?
Chapter 3 presents the results of the econometric analysis, detailing the relationships between different forms of ownership and the resulting capital structure. The significance and implications of the regression results for each variable are fully explored. The chapter also examines the robustness of the findings through sensitivity analyses and considerations of potential confounding factors. Specific findings regarding the impact of management ownership, external blockholders, and their interaction on capital structure are presented and discussed.
What are the main conclusions and implications for future research (Chapter 4)?
Chapter 4 summarizes the findings, providing a critique of the research and its limitations. It also identifies areas for future research based on the study's results and any unanswered questions or limitations discovered during the research process.
What are the key words associated with this thesis?
Key words include: Capital structure, ownership structure, management ownership, external block holders, DAX companies, debt-to-equity ratio, agency costs, incentive alignment, signaling, corporate governance, econometric analysis, regression analysis.
What is the significance of this research?
This research contributes to the understanding of the complex interplay between ownership structure and capital structure decisions in large German companies. The findings offer valuable insights for managers, investors, and policymakers interested in corporate governance and financial decision-making.
- Citar trabajo
- Dipl.-Kfm. Christian Funke (Autor), 2003, Ownership Structure as a Determinant of Capital Structure - An Empirical Study of DAX Companies, Múnich, GRIN Verlag, https://www.grin.com/document/25924
