Ownership Structure, Financial Decisions and Institutional Setting: An International Analysis Through Simultaneous Equations

25 Pages Posted: 10 Apr 2012

See all articles by Félix J. López-Iturriaga

Félix J. López-Iturriaga

Universidad de Valladolid - Department of Finance and Accounting

Juan Antonio Rodríguez-Sanz

University of Valladolid - Department of Economics and Business Administration

Date Written: April 10, 2012

Abstract

We analyze the mutual relations among firms’ capital structure, ownership structure and valuation. Through the estimation of a system of simultaneous equations for a sample of 1,130 firms from 16 countries from both the common law and the civil law environments, our results confirm the differential effect of ownership structure on firms’ value in each setting. Whereas in civil law firms the higher ownership concentration results in an entrenchment and an alignment effect, in the common law firms higher ownership concentration increases the value of the firm. Second, we corroborate the endogeneity of ownership structure since we find that ownership structure is affected by the value of the firm and by the capital structure. Third, our results suggest that corporate finance decisions are taken simultaneously with other mechanisms of corporate governance and conditional on firms’ valuation.

Keywords: Corporate finance, simultaneous equations, endogeneity, ownership structure, legal and institutional setting

Suggested Citation

Lopez-Iturriaga, Felix Javier and Rodríguez-Sanz, Juan Antonio, Ownership Structure, Financial Decisions and Institutional Setting: An International Analysis Through Simultaneous Equations (April 10, 2012). Available at SSRN: https://ssrn.com/abstract=2037947 or http://dx.doi.org/10.2139/ssrn.2037947

Felix Javier Lopez-Iturriaga (Contact Author)

Universidad de Valladolid - Department of Finance and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34 983 184 395 (Phone)
+34 983 183830 (Fax)

Juan Antonio Rodríguez-Sanz

University of Valladolid - Department of Economics and Business Administration ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34-983-423000 Ext. 24395 (Phone)
+34-983-423333 (Fax)

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