Does Ethnicity Matters in Capital Structure Decision in Family Firms? Overview of Agency Theory

Yusof Ali Noorhayati,Ahmad Zuriyati

doi:10.5171/2021.122227

Abstract

Drawing on the evidence indicating that prominent features of Asian companies are notably the concentrated ownership with extensive family ownership and dominance of controlling shareholders controlled by two main ethnic groups in Malaysia, namely the Chinese and the Malays, this study attempts to investigate the effect of ownership and ethnicity on the financing decisions of Malaysian family firms.

Highlights

Since the scientific work by Modigliani and Miller (1958), the theory of capital structure has become an important topic of debate in many studies
This study is motivated by the unique corporate structure of Malaysian public listed firms whose ownership is dominated by a few largest shareholders and they are substantially family-owned
The dominant presence of family controlled firms coupled with unique corporate segments, in which corporate boards and equity stake holding are dominated by two distinctive ethnic groups, trigger this study to further explore whether family ownership and ethnicity can potentially offer an evidence of capital structure variation that exists in these firms

Summary

Introduction

Since the scientific work by Modigliani and Miller (1958), the theory of capital structure has become an important topic of debate in many studies. Evidencing from that, many studies have sought to identify the determinants of firm's capital structure in various economic markets. These determinants include taxability, firm size, Cite this Article as: Noorhayati YUSOF ALI and Zuriyati AHMAD (2021), “Does Ethnicity Matters in Capital Structure Decision in Family Firms? The more recent and deliberate literature strands focus on the impact of inhouse firm-specific features such as ownership structures on capital structure choices (Masdiah, Azizah & Nur Atiqah, 2015; Lean, Ting & Kweh, 2015). The impact of ownership structures on companies’ financing decisions in emerging markets such as Malaysia has yet to be explored (Fan, Wei & Xu, 2011). Djankov and Lang (2000) found that almost 68 per cent of the sample of their Malaysian companies is family-run, and 28.3 percent of market capitalization is run by 15 families

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Conclusion