Abstract
The purpose of this paper is to analyze the relationship between ownership structure and indebtedness for a sample of 2,544 Spanish small and medium enterprises. A System Generalized Method of Moments methodology is applied to control for the heterogeneity and endogeneity problems. The finding shows a negative effect of several measures of ownership on debt ratio. Therefore, the presence of an individual as main shareholder has a positive effect on debt, while the presence of a corporation as main shareholder exerts a negative influence. As research implications, this paper includes the agency problem based on principal-principal conflicts to explain the capital structure of small and medium enterprises, going beyond traditional principal-agent conflicts. The main practical implications of the paper is that owners who seek equity financing can use the results of this study for understanding better why investors are reluctant to invest in their small and medium enterprises. Policymakers can use the results of this study to develop better policies and to promote better provision of information for all stakeholders. About the contribution of this study, we are not aware of any paper that uses a panel of small and medium enterprises operating in a French-civil law country to examine the relationship between indebtedness and three different proxies of the ownership structure.
Highlights
Since Berle, Means (1932) and Coase (1937), economists have been interested in the effects of the separation between ownership and control of corporate enterprises
This paper tries to fill this gap in the literature studying the relationship between ownership and capital structures as corporate governance mechanisms used by a sample of Spanish small and medium enterprises (SMEs) to mitigate agency problems
We apply panel data methodology and the System Generalized Method of Moments (GMM) technique because it is more powerful in controlling for unobservable heterogeneity and endogeneity, which are problems that have not been taken into account in most of the previous studies
Summary
Since Berle, Means (1932) and Coase (1937), economists have been interested in the effects of the separation between ownership and control of corporate enterprises. SMEs in civil law countries, compared to large companies in market based economies, have more concentrated ownership structures, are usually owner-managed, have worse access to capital markets, are less influenced by the external control mechanisms and their investors are weakly protected. In these circumstances it becomes very important to analyze the relationship between ownership and capital structures from the perspective of the agency problems arising when controlling shareholders try to expropriate wealth from minority shareholders.
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