Impact of Ownership Structure on Capital Structure Decisions : Evidence from Bangladeshi Listed Companies

Abstract

This study seeks to examine the impact of ownership structure on the capital
structure decisions of firms in an emerging market economy. Our sample
consists of 792 firm-year observations drawn from non-financial firms listed
in the Dhaka Stock Exchange, Bangladesh, and spans the period from 2010
to 2018. We define capital structure by the ratio of total debt to total assets
and measure ownership identity as the percentage of shares attributable to six
categories of shareholders. These include family owners, managerial owners,
state owners, institutional owners, individual owners and foreign owners.
Using pooled OLS regression and controlling for a number of governance and
firm-specific variables, we find that family ownership, managerial ownership
and state ownership each has a positive and significant influence on leverage.
We propose that while state-owned businesses may be utilizing more debt due
to their greater ability to access finance and to withstand financial distress,
the propensity of family owners and managerial owners towards debt may be
explained in terms of their desire to avoid the dilution of equity and/or their desire
to maximize firm value. However, we also question whether the institutional
voids in Bangladesh make debt a convenient financing option and whether this,
in fact, leads family owners and managerial owners to opportunistically take on
more debt, without adequate regard to its impact on the value of the firm.