MANAGERIAL SHARE OWNERSHIP AND CAPITAL STRUCTURE DECISION OF NIGERIAN LISTED NON-FINANCIAL FIRMS
DOI:
https://doi.org/10.51406/jhssca.v12i1.1863Keywords:
Managerial ownership, Agency cost, Capital structure, Leverage, Pecking orderAbstract
The paper examined the relationship between managerial share ownership and leverage of 35 non-financial firms listed on the floor of the Nigerian Stock Exchange. The study covered the period 2005-2014. Using panel data regression analysis and fixed effects model (with least squares as an estimation technique), result revealed a positive and significant relationship between leverage and managerial share ownership. This suggested that managerial share ownership, an important internal corporate governance mechanism, played an important role in a company’s capital structure decision. The outcome of this study was supported by some prior empirical studies and provided evidence of alignment of the interests of management and shareholders as proposed by the Agency theory. It is recommended that Nigerian companies should encourage management to own shares in companies where they serve as directors as this will reduce managerial incentives to consume perquisites and expropriation of shareholders’ wealth or investing in unprofitable projects.
References
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Acaravci, S.K. 2015. The determinants of capital structure: evidence from the Turkish manufacturing sector. International Journal of Economics and Financial Issues, 5(1), 158-171.
Agyei, A. & Owusu, A.R. 2014. The effect of ownership structure and corporate governance on capital structure of Ghanaian listed manufacturing companies. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(1), 109-118.
Akinlo, O. 2011. Determinants of capital structure: evidence from Nigerian panel data. African Economic and Business Review, 9 (1), 1-16.
Alani, M.K. & Alamri, M.S. 2015. The determinants of capital structure: an empirical study of Omani listed industrial companies. Business: Theory and Practice. 16(2), 159-167.
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Alsaaed, K. 2005. The association between firm-specific characteristics and disclosure: the case of Saudi Arabia. Journal of American Academy of Business, 7(1), 310-321.
Arshad, H. & Safdar, A.B. 2009. Impact of ownership structure and corporate governance on capital structure of Pakistani listed companies. International Journal of Business and Management, 4(2), 50-57.
Arsian, M. & Zaman, R. 2014. Relationship between capital structure and ownership structure: a comparative study of textile and non-textile manufacturing firms. Public Policy and Administration Research, 4(11), 53-63.
Bae, S. C. 2009. On the interactions of financing and investment decisions. Managerial Finance, 35(8), 691-699.
Beven, A. & Danbolt, J. 2002. Capital structure and its determinants in the use of a decompositional analysis. Applied Financial Economics, 12, 159-170.
Bharath, S. T., Pasquariello, P. & Wu, G. 2006. Does asymmetric information drive capital structure decisions? Working Paper, University of Michigan and University of Houston.
Boodhoo, R. (2009). Capital structure and ownership structure: a review of literature. Journal of Online Education, January, 1-8.
Chen, M. & Tzeng, Z. 2011. How does ownership structure affect capital structure and firms performance? Evidence from Taiwan. Global Review of Accounting and Finance, 2(2), 61-81.
Chen, L. & Zhao, X. 2005. Firm financing decisions. Working Paper, Michigan State University and Kent State University.
Dawood, M.H.A.K., Moustafa, E.I. & El-Hennawi, M.S. 2011. The determinants of capital structure in listed Egyptian corporations. Middle Eastern Finance and Economics, 9, 83-99.
Driffield, N.L., Mahambare, V. & Pal, S. 2006. How does ownership structure affect capital structure and firm performance? Recent evidence from East Asia. Economics of Transition. 15 (3), 535-573.
E- Views 7.0 2010: User’s Guide.
Ezeoha, A. E. 2011. Firm versus industry financing structures in Nigeria. African Journal of Economic and Management Studies, 2(1), 42-55.
Fama, E.F. & Jensen, M.C. 1983. Separation of ownership and control. Journal of Law and Economics, 26(2), 301-325.
Fathi, S., Ghandehari, F. & Shirangi, S.Y. 2014. Comparative study of capital structure determinants in selected stock exchanges of developing countries and Tehran Stock Exchange. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4 (1), 67-75.
Flannery, M. J. & Rangan, K. P. 2004. Partial adjustment toward target capital structure. Draft Paper, 1- 49.
Gujarati, D.N. 2003. Basic Econometrics. New York: McGraw-Hill/Irwin.
Gul, S., Sajid, M., Razzaq, N. & Afzal, F. 2012. Agency cost, corporate governance and ownership structure (the case of Pakistan). International Journal of Business and Social Science, 3(9), 268-277.
Haron, R. 2014. Key factors influencing target capital structure of property firms in Malaysia. Asian Social Science, 10 (3), 62-69.
Hausman, J. A. 1978. Specification tests in econometrics. Econometrica, 46(6), 1215- 1271.
Javeed, A., Hassan, M. & Azeem, M. 2014. Interrelationship among capital structure, corporate governance measures and firm value: panel study from Pakistan. Pakistani Journal of Commerce and Social Sciences, 8(3), 572-589.
Jensen, M. C. 1986. Agency costs of free cash flow, corporate finance and takeovers. American Economic Review, 76, 323-329.
Jensen, M. C. & Meckling, W. H. 1976. Theory of the firm: managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3, 305-360.
Joher, H., Ali, M. & Nazrul, M. 2006. The impact of ownership structure on corporate debt policy: two stage least square simultaneous model approach for post crisis period: evidence from Kuala Lumpur Stock Exchange. International Business and Economic Research Journal, 5(5), 51-63.
Kajola, S.O. 2015. Determinants of capital structure of Nigerian quoted companies. Unpublished PhD Thesis, Ladoke Akintola University of Technology, Ogbomoso, Nigeria.
Kajola, S.O., Abosede, A.J. & Akidele, J.A. 2014. Ownership structure and firm performance. Sokoto Journal of Management Studies, 6(1), 40-59.
Kajola, S.O., Okewale, J. A. & Desu, A. A. 2008. Does pecking order model of capital structure explain the financing behaviour of Nigerian listed firms? A paper delivered at a seminar organized by the Faculty of Management Sciences, Olabisi Onabanjo University, Ago-Iwoye, Nigeria.
Kim, W.S. & Sorensen, E.H. 1986. Evidence on the impact of the agency costs of debt on corporate debt policy. Journal of Financial and Quantitative Analysis, 21(2), 131-144.
Kumar, M.A.S., Dhanasekaran, M., Sandhya, S. & Saravanan, R. 2012. Determination of financial capital structure on the insurance sector firms in India. European Journal of Social Sciences, 29(2), 288- 294.
Levent, C. & Ersan, E. 2012. The determinants of corporate debt ratio: an empirical analysis on Turkish corporations. International Research Journal of Finance and Economics, 95, 151- 162.
Lubatkin, M. & Chatterjee, S. 1994. Extending modern portfolio theory into the domain of corporate diversification: does it apply? Academy of Management Journal, 37, 109-136.
Mahvish, S. & Qaisar, A.M. 2012. Determinants of capital structure- a study of oil and gas sector of Pakistan. Interdisciplinary Journal of Contemporary Research in Business, 3(10), 395- 400.
Marfo-Yiadom, E. & Agyei, S. K. 2011. Determinants of dividend policy of banks in Ghana. International Research Journal of Finance and Economics, 61, 99-108.
Masood, A. 2014. Relationship between ownership structure and capital structure: a case of manufacturing sector of Pakistan. Journal of Basic Applied Science Research, 4(2), 180-188.
Maxwell, O. O. & Kehinde, E. E. 2012. Determinants of corporate capital structure in Nigeria. International Journal of Economics and Management Sciences, 1(10), 81-96.
Mehran, H. 1992. Executive incentive plans, corporate control and capital structure. Journal of Financial and Quantitative Analysis, 27(4),
Modigliani F. & Miller, M. 1958. The cost of capital, corporate finance and the theory of investment. American Economic Review, June, 48(4), 261-297.
Modigliani F. & Miller, M. 1963. Corporate income taxes and the cost of capital- a correction. American Economic Review, 53(3), 433-443.
Mohammad, A., Mir, F.S.M. & Hojjatollah, D. 2015. Determinants of capital structure: an empirical study of firms in Iran. International Journal of Law and Management, 57(1), 53-83.
Myers S. C. 1984. The capital structure puzzle. Journal of Finance, 39, 575-592.
Myers S. C. & Majluf, N. 1984. Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13, 187-221.
Nigerian Stock Exchange 2005-2014. Fact Book, Lagos.
Nyonna, D.Y. 2012. Simultaneous determination of insider ownership and leverage: the case of small businesses. Economics and Business Journal: Inquiries and Perspectives, 4(1), 9-20.
Onaolapo, A. A., Kajola, S. O. & Nwidobie, M. B. 2015. Determinants of capital structure: a study of Nigerian quoted companies. European Journal of Business and Management, 7(23), 170-183.
Pfeffer, J. & Salancick, G. R. 1978. The External Control of Organizations: A Resource-Dependence Perspective. New York: Harper and Row.
Pinegar, M. & Wilbricht, L. 1989. What managers think of capital structure theory: a survey? Financial Management, Winter, 82-91.
Rajan, R. G. & Zingales, L. 1995. What do we know about capital structure? Some evidence from international Data. Journal of Finance, 50 (5) December, 1421-1460.
Rumsey, D. 2007. Intermediate Statistics for Dummies. Indianapolis: Wiley Publishing Inc.
Salawu, R. O. & Agboola, A. A. 2008. The determinants of capital structure of large non-financial listed firms in Nigeria. International Journal of Business and Finance Research, 2(2), 75-84.
Seyed, A.L., Hassan, G. & Mohsen, I. 2015. Specifying the relationship between ownership concentration, firm value and capital structure in the accepted companies in the Tehran stock exchange. Danish Journal of Management and Business Sciences, April, 23-29.
Shleifer, A. & Vishny, R.W. 1986. Large shareholders and corporate control. Journal of Political Economy, 94, 461-488.
Short, H., Zhang, H. & Keasey, K. 2002 The link between dividend policy and institutional ownership. Journal of Corporate Finance, 8, 105-122.
Sivathaasan, N. 2013. Foreign ownership, domestic ownership and capital structure: special reference to manufacturing companies quoted on Colombo stock exchange in Sri Lanka. European Journal of Business and Management, 5(20), 35-41.
Tomak, S. 2013. The impact of overconfidence on capital structure in Turkey. International Journal of Economics and Financial Issues, 3(2), 512-518.
Ukaegbu, B., Oino, I., Dada, F.B. 2014. The impacts of ownership structure on capital structure and firm’s performance in Nigeria. Research Journal of Finance and Accounting, 5(15), 82-89.
Wahab, S.N.A. & Ramli, N.A. 2014. The determinants of capital structure: an empirical investigation of Malaysian listed government linked companies. International Journal of Economics and Financial Issues, 4(4), 930-945.
Wedig, G., Sloan, F. A., Assan, M., Morrisey, M. A. 1988. Capital structure, ownership and capital payment policy: the case of hospitals. Journal of Finance, 43, 21-40.
Wen, Y., Rwegasira, K., Bilderbeek, J. 2002. Corporate governance and capital structure decisions of Chinese listed firms. Corporate Governance: An International Review, 10(2), 75-83.
Wooldridge, J.M. 2002. Econometric Analysis of Cross-section and Panel Data. Cambridge: MIT Press.
Abor, J. 2008. Determinants of the capital structure of Ghanaian firms. AERC Research Paper No.176, African Economic Research Consortium, Nairobi, 1- 34.
Abor, J. & Biekpe, N. 2005. What determines the capital structure of listed firms in Ghana? African Finance Journal, 7(1), 37-48.
Acaravci, S.K. 2015. The determinants of capital structure: evidence from the Turkish manufacturing sector. International Journal of Economics and Financial Issues, 5(1), 158-171.
Agyei, A. & Owusu, A.R. 2014. The effect of ownership structure and corporate governance on capital structure of Ghanaian listed manufacturing companies. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(1), 109-118.
Akinlo, O. 2011. Determinants of capital structure: evidence from Nigerian panel data. African Economic and Business Review, 9 (1), 1-16.
Alani, M.K. & Alamri, M.S. 2015. The determinants of capital structure: an empirical study of Omani listed industrial companies. Business: Theory and Practice. 16(2), 159-167.
Al-Fayoumi, N.A. & Abuzayed, B.M. 2009. Ownership structure and corporate reporting. Applied Financial Economics, 19(24), 1975-1986.
Alsaaed, K. 2005. The association between firm-specific characteristics and disclosure: the case of Saudi Arabia. Journal of American Academy of Business, 7(1), 310-321.
Arshad, H. & Safdar, A.B. 2009. Impact of ownership structure and corporate governance on capital structure of Pakistani listed companies. International Journal of Business and Management, 4(2), 50-57.
Arsian, M. & Zaman, R. 2014. Relationship between capital structure and ownership structure: a comparative study of textile and non-textile manufacturing firms. Public Policy and Administration Research, 4(11), 53-63.
Bae, S. C. 2009. On the interactions of financing and investment decisions. Managerial Finance, 35(8), 691-699.
Beven, A. & Danbolt, J. 2002. Capital structure and its determinants in the use of a decompositional analysis. Applied Financial Economics, 12, 159-170.
Bharath, S. T., Pasquariello, P. & Wu, G. 2006. Does asymmetric information drive capital structure decisions? Working Paper, University of Michigan and University of Houston.
Boodhoo, R. (2009). Capital structure and ownership structure: a review of literature. Journal of Online Education, January, 1-8.
Chen, M. & Tzeng, Z. 2011. How does ownership structure affect capital structure and firms performance? Evidence from Taiwan. Global Review of Accounting and Finance, 2(2), 61-81.
Chen, L. & Zhao, X. 2005. Firm financing decisions. Working Paper, Michigan State University and Kent State University.
Dawood, M.H.A.K., Moustafa, E.I. & El-Hennawi, M.S. 2011. The determinants of capital structure in listed Egyptian corporations. Middle Eastern Finance and Economics, 9, 83-99.
Driffield, N.L., Mahambare, V. & Pal, S. 2006. How does ownership structure affect capital structure and firm performance? Recent evidence from East Asia. Economics of Transition. 15 (3), 535-573.
E- Views 7.0 2010: User’s Guide.
Ezeoha, A. E. 2011. Firm versus industry financing structures in Nigeria. African Journal of Economic and Management Studies, 2(1), 42-55.
Fama, E.F. & Jensen, M.C. 1983. Separation of ownership and control. Journal of Law and Economics, 26(2), 301-325.
Fathi, S., Ghandehari, F. & Shirangi, S.Y. 2014. Comparative study of capital structure determinants in selected stock exchanges of developing countries and Tehran Stock Exchange. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4 (1), 67-75.
Flannery, M. J. & Rangan, K. P. 2004. Partial adjustment toward target capital structure. Draft Paper, 1- 49.
Gujarati, D.N. 2003. Basic Econometrics. New York: McGraw-Hill/Irwin.
Gul, S., Sajid, M., Razzaq, N. & Afzal, F. 2012. Agency cost, corporate governance and ownership structure (the case of Pakistan). International Journal of Business and Social Science, 3(9), 268-277.
Haron, R. 2014. Key factors influencing target capital structure of property firms in Malaysia. Asian Social Science, 10 (3), 62-69.
Hausman, J. A. 1978. Specification tests in econometrics. Econometrica, 46(6), 1215- 1271.
Javeed, A., Hassan, M. & Azeem, M. 2014. Interrelationship among capital structure, corporate governance measures and firm value: panel study from Pakistan. Pakistani Journal of Commerce and Social Sciences, 8(3), 572-589.
Jensen, M. C. 1986. Agency costs of free cash flow, corporate finance and takeovers. American Economic Review, 76, 323-329.
Jensen, M. C. & Meckling, W. H. 1976. Theory of the firm: managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3, 305-360.
Joher, H., Ali, M. & Nazrul, M. 2006. The impact of ownership structure on corporate debt policy: two stage least square simultaneous model approach for post crisis period: evidence from Kuala Lumpur Stock Exchange. International Business and Economic Research Journal, 5(5), 51-63.
Kajola, S.O. 2015. Determinants of capital structure of Nigerian quoted companies. Unpublished PhD Thesis, Ladoke Akintola University of Technology, Ogbomoso, Nigeria.
Kajola, S.O., Abosede, A.J. & Akidele, J.A. 2014. Ownership structure and firm performance. Sokoto Journal of Management Studies, 6(1), 40-59.
Kajola, S.O., Okewale, J. A. & Desu, A. A. 2008. Does pecking order model of capital structure explain the financing behaviour of Nigerian listed firms? A paper delivered at a seminar organized by the Faculty of Management Sciences, Olabisi Onabanjo University, Ago-Iwoye, Nigeria.
Kim, W.S. & Sorensen, E.H. 1986. Evidence on the impact of the agency costs of debt on corporate debt policy. Journal of Financial and Quantitative Analysis, 21(2), 131-144.
Kumar, M.A.S., Dhanasekaran, M., Sandhya, S. & Saravanan, R. 2012. Determination of financial capital structure on the insurance sector firms in India. European Journal of Social Sciences, 29(2), 288- 294.
Levent, C. & Ersan, E. 2012. The determinants of corporate debt ratio: an empirical analysis on Turkish corporations. International Research Journal of Finance and Economics, 95, 151- 162.
Lubatkin, M. & Chatterjee, S. 1994. Extending modern portfolio theory into the domain of corporate diversification: does it apply? Academy of Management Journal, 37, 109-136.
Mahvish, S. & Qaisar, A.M. 2012. Determinants of capital structure- a study of oil and gas sector of Pakistan. Interdisciplinary Journal of Contemporary Research in Business, 3(10), 395- 400.
Marfo-Yiadom, E. & Agyei, S. K. 2011. Determinants of dividend policy of banks in Ghana. International Research Journal of Finance and Economics, 61, 99-108.
Masood, A. 2014. Relationship between ownership structure and capital structure: a case of manufacturing sector of Pakistan. Journal of Basic Applied Science Research, 4(2), 180-188.
Maxwell, O. O. & Kehinde, E. E. 2012. Determinants of corporate capital structure in Nigeria. International Journal of Economics and Management Sciences, 1(10), 81-96.
Mehran, H. 1992. Executive incentive plans, corporate control and capital structure. Journal of Financial and Quantitative Analysis, 27(4),
Modigliani F. & Miller, M. 1958. The cost of capital, corporate finance and the theory of investment. American Economic Review, June, 48(4), 261-297.
Modigliani F. & Miller, M. 1963. Corporate income taxes and the cost of capital- a correction. American Economic Review, 53(3), 433-443.
Mohammad, A., Mir, F.S.M. & Hojjatollah, D. 2015. Determinants of capital structure: an empirical study of firms in Iran. International Journal of Law and Management, 57(1), 53-83.
Myers S. C. 1984. The capital structure puzzle. Journal of Finance, 39, 575-592.
Myers S. C. & Majluf, N. 1984. Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13, 187-221.
Nigerian Stock Exchange 2005-2014. Fact Book, Lagos.
Nyonna, D.Y. 2012. Simultaneous determination of insider ownership and leverage: the case of small businesses. Economics and Business Journal: Inquiries and Perspectives, 4(1), 9-20.
Onaolapo, A. A., Kajola, S. O. & Nwidobie, M. B. 2015. Determinants of capital structure: a study of Nigerian quoted companies. European Journal of Business and Management, 7(23), 170-183.
Pfeffer, J. & Salancick, G. R. 1978. The External Control of Organizations: A Resource-Dependence Perspective. New York: Harper and Row.
Pinegar, M. & Wilbricht, L. 1989. What managers think of capital structure theory: a survey? Financial Management, Winter, 82-91.
Rajan, R. G. & Zingales, L. 1995. What do we know about capital structure? Some evidence from international Data. Journal of Finance, 50 (5) December, 1421-1460.
Rumsey, D. 2007. Intermediate Statistics for Dummies. Indianapolis: Wiley Publishing Inc.
Salawu, R. O. & Agboola, A. A. 2008. The determinants of capital structure of large non-financial listed firms in Nigeria. International Journal of Business and Finance Research, 2(2), 75-84.
Seyed, A.L., Hassan, G. & Mohsen, I. 2015. Specifying the relationship between ownership concentration, firm value and capital structure in the accepted companies in the Tehran stock exchange. Danish Journal of Management and Business Sciences, April, 23-29.
Shleifer, A. & Vishny, R.W. 1986. Large shareholders and corporate control. Journal of Political Economy, 94, 461-488.
Short, H., Zhang, H. & Keasey, K. 2002 The link between dividend policy and institutional ownership. Journal of Corporate Finance, 8, 105-122.
Sivathaasan, N. 2013. Foreign ownership, domestic ownership and capital structure: special reference to manufacturing companies quoted on Colombo stock exchange in Sri Lanka. European Journal of Business and Management, 5(20), 35-41.
Tomak, S. 2013. The impact of overconfidence on capital structure in Turkey. International Journal of Economics and Financial Issues, 3(2), 512-518.
Ukaegbu, B., Oino, I., Dada, F.B. 2014. The impacts of ownership structure on capital structure and firm’s performance in Nigeria. Research Journal of Finance and Accounting, 5(15), 82-89.
Wahab, S.N.A. & Ramli, N.A. 2014. The determinants of capital structure: an empirical investigation of Malaysian listed government linked companies. International Journal of Economics and Financial Issues, 4(4), 930-945.
Wedig, G., Sloan, F. A., Assan, M., Morrisey, M. A. 1988. Capital structure, ownership and capital payment policy: the case of hospitals. Journal of Finance, 43, 21-40.
Wen, Y., Rwegasira, K., Bilderbeek, J. 2002. Corporate governance and capital structure decisions of Chinese listed firms. Corporate Governance: An International Review, 10(2), 75-83.
Wooldridge, J.M. 2002. Econometric Analysis of Cross-section and Panel Data. Cambridge: MIT Press.
