Capital structure, corporate governance, family-owned companies, debt financing, and leverage


The purpose of paper is to examine the corporate governance attributes that will influence the capital structure of the Malaysian family-owned company. More specifically, this study divides into two objectives which are to examine the relationship between corporate governance and capital structure of the Malaysian family-owned company and to examine whether corporate governance has a significant impact on the capital structure of the Malaysian family-owned company. This study will establish whether capital structure is determined by the various corporate governance attributes, namely board of director size, board of director composition, board of director financial expertise, Chief Executive Officer (CEO) duality role, and Chief Executive Officer (CEO) tenure. This paper employed the family-owned company listed in main market of Bursa Malaysia and yet, the selection of listed family-owned companies based on the prior literature. The sample of 195 companies has met the characteristic of family-owned companies and the study covers three years observations which are 2009, 2010, and 2011 collected from annual report as data for non financial attributes The general findings show that there is a significant negative relationship between board composition and debt ratio, long-term debt ratio and short-term debt ratio which indicates that high proportion of board composition is associated with lower debt ratio and long-term debt ratio which is there is low dependent on debt financing and CEO tenure and capital structure also has significant relationship, but only with long-term debt ratio. This suggests the longer tenure will lower the dependent on the debt financing.

Full Text : PDF

  1. Abor, J. (2007). Corporate governance and financing decision of Ghanaian listed firms. Corporate Governance, 7(1), 83-92.
  2. Abu-Tapanjeh, A. M. (2006). An empirical study of firm structure and profitability relationship: The case of Jordan. Journal of Economic & Administrative Sciences, 22(1), 41-59.
  3. Adams, M. B. (1994). Agency Theory and the Internal Audit. Managerial Auditing Journal, 9(8), 8-12.
  4. Ahmadpour, A., Samimi, A. J., & Golmohammadi, H. (2012). Corporate governance and capital structure:     Evidence from Tehran Stock Exchange. Middle-East Journal of Scientific Research, 11(4), 531-535.
  5. Ahmed, H. J. A., & Hisham, N. (2009). Revisiting capital structure theory: A test of pecking order and static     order trade-of model from Malaysian capital market. International Research Journal of Finance and     Economics, 30, 58-65.
  6. Amjed, S. (2007). The impact of financial structure on profitability: Study of Pakistan’s textile sector. Poster     session presented at the Management of International Business and Economic Systems Conference,     Larissa, Greece.
  7. Amran, N. A, & Che Ahmad, A. (2011). Boards mechanisms and Malaysian family companies’ performance. Asian Journal of Accounting and Governance, 2, 15-26.
  8. Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2003). Founding family ownership and the agency cost of debt.     Journal of Financial Economics, 68(2), 263-285.
  9. Anderson, R. C., & Reeb, D. M. (2003). Founding-family ownership and firm performance. The Journal of Finance, 58(3), 1301-1328.
  10. Azhagaiah, R., & Gavoury, C. (2011). The impact of capital structure on profitability with special reference to     IT industry in India vs. Domestic products. Managing Global Transition, 9(4), 371-392.
  11. Bartholomeusz, S., & Tanewski, G. A. (2006). The relationship between family firms and corporate governance.     Journal of Small Business Management, 44(2), 245-267.
  12. Beretta, S., & Bozzolan, S. (2008). Quality versus quantity. The case of forward – looking disclosure. Journal of     Accounting, Auditing & Finance, 3, 333-375.
  13. Berger, P., Ofek, E., & Yermack, D. (1997). Managerial entrenchment and capital structure decision. Journal of Finance, 54(4), 1411-1438.
  14. Boateng, A. (2004). Determinants of capital structure: Evidence from international joint ventures in Ghana.     International Journal of Social Economics, 31(1), 56-66.
  15. Bokpin, G. A. (2009). Macroeconomic development and capital structure decisions of firms: Evidence from emerging market economics: Studies in Economics and Finance, 26(2), 129-142.
  16. Bokpin, G. A., & Arko, A. C. (2009). Ownership structure, corporate governance and capital structure decisions of firms: Empirical evidence from Ghana. Studies in Economics and Finance, 26(4), 246-256.
  17. Bonazzi, L., & Islam, S. M. N. (2007). Agency theory and corporate governance: A study of the effectiveness of     board in their monitoring of the CEO. Journal of Modelling in Management, 2(1), 7-23.
  18. Bujaki, M. L., & McConomy, B. J. (2001). Corporate Governance: Factors Influencing Voluntary Disclosure by     Publicly Traded Canadian Firms: Faculty of Administration, University of Ottawa = Faculté     d’administration, Université d’Ottawa.
  19. Bursa Malaysia Listing Requirement. (2012). Retrieved from Bursa Malaysia: 
  20.     November 19, 2012.
  21. Cadbury. (1992). Report of the committee on the financial aspects of corporate governance. London: Gee Professional Publishing Ltd.
  22. Cohen, J. (1988). Statistical power analysis for the behavioral sciences (2 ed.) New Jersey: Lawrence Erlbaum Associates Inc.
  23. Colton, J. A., & Bower, K. M. (2002). Some misconceptions about R square. International Society of Six Sigma Professionals, EXTRAOrdinary Sense, 3(2), 20-22.
  24. Corporate Governance Blueprint. (2011). Malaysia: Securities Commission.
  25. Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26,     301-325.
  26. Field, A. (2009). Discovering statistics using SPSS (3 ed.) SAGE Publication.
  27. Frank, M. Z., & Goyal, V. K. (2003). Testing the pecking order theory of capital structure. Journal of Finance Economics, 67, 217-248.
  28. Gill, A., Biger, N., Mand, H. S., & Shah, C. (2012). Corporate Governance and capital structure of small business service firms in India. International Journal of Economics and Finance, 4(8), 83-92.
  29. Guner, B., Malmedier, U., & Tate, G. (2007). Financial expertise of directors. Journal of Financial Economics, 88(2), 323-354.
  30. Haque, F., Arun, T. G., & Kirkpatrick, C. (2011). Corporate Governance and capital structure in developing countries: a case study of Bangladesh. Applied Economics, 43(6), 673-681.
  31. Harford, J., Li, K., & Zhao, X. (2008). Corporate Boards and the leverage and debt maturity choices.     International Journal of Corporate Governance, 1(1), 3-27.
  32. Hashim, H. A. (2011). Corporate disclosures by family firms: Malaysian evidence. Journal of Business and Policy Research, 6(2), 111-125.
  33. Heng, T. B., Azrbaijani, S., & San, O. T. (2012). Board of Directors and capital structureL Evidence from leading Malaysian Companies. Asian Social Science, 8(3), 123-136.
  34. Hussainey, K., & Aljifri, K. (2012). Corporate Governance mechanism and capital structure in UAE. Journal of Applied Accounting Research, 13(2), 145-160.
  35. Jassim, A., Dexter, C. R., & Sidhu, A. (1988). Agency Theory: Implications for Financial management.     Managerial Finance, 14(4), 1-5.
  36. Jeanjean, T., & Stolowy, H. (2009). Determinants of board members’ financial expertis-Empirical evidence from France International Journal of Accounting 44, 378-402.
  37. Jensen, M. (1986). Agency cost of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323-329.
  38. Jensen, M., & Meckling, W. (1976). Theory of the firm. Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305-260.
  39. Jiraporn, P., Kim, J.-C., Kim , Y. S., & Kitsabunnarat, P. (2012). Capital structure and corporate governance quality: Evidence from the Institutional Shareholder Services (ISS). International Review of Economics & Finance, 22(1), 208-221.
  40. Kim, H., & Lim, C. (2010). Diversity, outside directors and firm valuation: Korean evidence. Journal of     Business Research, 63(3), 284-291.
  41. Kuo, H. C., Wang, L. H., W. (2012). Corporate governance and capital structure: Evidence from Taiwan SMEs.     Review of Economics & Finance, 2(3), 43-58.
  42. Malaysian Code on Corporate Governance. (2012). Malaysia. Securities Commission.
  43. Malaysian Code on Corporate Governance. (2007). Malaysia. Securities Commission.
  44. Malaysian Code on Corporate Governance. (2000). Malaysia. Securities Commission.
  45. Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3), 261-297.
  46. Mohd Saad, N. (2010). Corporate governance compliance and the effect to capital structure in Malaysia.     International Journal of Economics and Finance, 2(1), 105-114.
  47. Momani, G., Alsharayri, M., Dandan, M. (2010). Impact of firm’s characteristics on determining the financial structure on the insurance sector firms in Jordan. Journal of Social Science, 6(2), 282-286.
  48. Myers, S. C., & Majluf, N. S. (1984). Corporate Financing and investment decisions when firms have     information that investors do not have. Journal of Financial Economics, 13(2), 187-221.
  49. Oktovianti, T., & Agusta, D. (2012).  Influence of the internal corporate governance and leverage ratio to the Earnings Management. J. Basic. Appl. Sci. Res., 2(7), 7192-7199.
  50. Pallant, J. (2005). SPSS survival manual: A step by step guide to data analysis using SPSS for windows: Allen & Unwin.
  51. Sarbaney-Oxley Act 2002. Disclosure of audit committee financial expert. Securities and Exchange Commission.
  52. Sheikh, N. A., & Wang, Z. (2012). Effects of corporate governance on capital structure: empirical evidence from Pakistan. Corporate Governance, 12(5), 629-64.
  53. Stiglbauer, M. (2011). Impact of capital and ownership structure on corporate governance and performance: Evidence from insider system. Problem and Perspective in Management, 9(1), 16-23.
  54. Tabachnick, B., & Fidell, L. (2007). Using multivariate statistic (5 ed.): Pearson Education Inc.
  55. Tsao, C. W., Chen, S. J., Lin, C. S., & Hyde, W. (2009). Founding-family ownership and firm performance. The role of high-performance work system. Family Business Review, 22(4), 319-332.
  56. Vakilifard, H. R., Gerayli, M.S., Yanesari, A. M., & Ma’atoofi, A. R. (2011). Effect of corporate governance on     capital structure: Case of the Iranian listed firms. European Journal of Economics, Finance, and     administrative Science, (35), 165-172.
  57. Villalonga, B., & Amit, R. (2006). How do family ownership, control and management affect firm value? Journal of Financial Economics, 80(2), 385-417.
  58. Wen, Y., Rwegasira, K., & Bilderbeek, J. (2002). Corporate governance and capital structure decisions of the Chinese listed firms. Corporate Governance: An International Review, 10(2), 75-83.
  59. Zubairi, H. J. (2010). Impact of working capital management and capital structure on profitability of automobile     firms in Pakistan. Retrieved from SSRN website: