The Influence of a Firm's Ownership Structure and Chaebol Group Belongingness on its Debt Levels -Using Korean Firms-

Abstract

In this paper, we investigate the influence of corporate ownership structure on debt ratio, by studying whether the importance of management's will and a firm's chaebol group affiliation affect its capital structure. As different regression models often indicate different results, they are in line with different firms' conditions, such as a corporate ownership structure or the previous year's debt levels, it might imply that it is too early to have a final conclusion about the relationship between a firm's debt level and corporate ownership structure. However, we confirm that firms debt ratios show statistically significant differences, based on firms' ownership structure and on chaebol group belongingness. In addition, corporate ownership structure and debt ratios present an inverted U-sharp(∩)relationship between them; and a negative association between them if firms are chaebol group affiliations, and a positive association otherwise. Finally, firms with a high level of ownership ratio or with chaebol group affiliations show high speed of capital structure adjustment compared with others, ceteris paribus. This implies that a strong ownership or an image of financial stability caused by chaebol group affiliation gives firms an opportunity for a fast capital structure adjustment. However, as our results also indicate, firms' debt ratios are more seriously influenced by their size, profits and tangible asset levels than their corporate ownership structure.