{"title":"THE SPEED OF ADJUSTMENT TOWARDS OPTIMAL CAPITAL STRUCTURE: DO OWNERSHIP CONCENTRATION AND BOARD DIVERSITY MATTER?","authors":"Hanis Adiela, Abdul Hadi","doi":"10.33736/ijbs.5627.2023","DOIUrl":null,"url":null,"abstract":"Using a partial adjustment model of capital structure, this study examines the role of ownership concentration and board diversity on the speed of adjustment towards optimal leverage. While a degree of ownership concentration can create value, board diversity on the other hand, is vital for companies to endure shifting market conditions. Both components are necessary for leveraging the outcomes of recent Malaysian Corporate Governance Strategic Priorities (2017-2023). As such, recognizing factors that could hinder the adjustment process is important as firms may deviate from their optimal leverage. The analysis of this study includes the top 100 non-financial Malaysian listed companies from 2012 to 2017. Evidence from this study indicates large Malaysian firms have optimal leverage and adjust at a modest rate towards their target in the long-term. The results are robust when using two alternative measures of ownership concentration, which are the single largest shareholder (OC1) and five largest shareholders (OC5). This study reveals both proxies have negative impact on adjustment speed. In other words, large firms with high level of concentrated ownership adjust their leverage slower towards the optimal level. Likewise, a negative significant relationship is found between board diversity and adjustment speed with the presence of OC5. Firm size is also found to have a significant impact on adjustment speed. These results potentially have long-term ramifications for corporate governance, as specific prerogatives for minority shareholders and directors representing them are required to reduce the negative externalities brought by concentrated ownership. Firms should outweigh the cost and benefits of board diversity, as more diverse boards may hinder the adjustment process.","PeriodicalId":13836,"journal":{"name":"International Journal of Business and Society","volume":"187 1","pages":""},"PeriodicalIF":0.7000,"publicationDate":"2023-04-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Journal of Business and Society","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.33736/ijbs.5627.2023","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"BUSINESS","Score":null,"Total":0}
引用次数: 0
Abstract
Using a partial adjustment model of capital structure, this study examines the role of ownership concentration and board diversity on the speed of adjustment towards optimal leverage. While a degree of ownership concentration can create value, board diversity on the other hand, is vital for companies to endure shifting market conditions. Both components are necessary for leveraging the outcomes of recent Malaysian Corporate Governance Strategic Priorities (2017-2023). As such, recognizing factors that could hinder the adjustment process is important as firms may deviate from their optimal leverage. The analysis of this study includes the top 100 non-financial Malaysian listed companies from 2012 to 2017. Evidence from this study indicates large Malaysian firms have optimal leverage and adjust at a modest rate towards their target in the long-term. The results are robust when using two alternative measures of ownership concentration, which are the single largest shareholder (OC1) and five largest shareholders (OC5). This study reveals both proxies have negative impact on adjustment speed. In other words, large firms with high level of concentrated ownership adjust their leverage slower towards the optimal level. Likewise, a negative significant relationship is found between board diversity and adjustment speed with the presence of OC5. Firm size is also found to have a significant impact on adjustment speed. These results potentially have long-term ramifications for corporate governance, as specific prerogatives for minority shareholders and directors representing them are required to reduce the negative externalities brought by concentrated ownership. Firms should outweigh the cost and benefits of board diversity, as more diverse boards may hinder the adjustment process.
期刊介绍:
International Journal of Business and Society (IJBS) is an international scholarly journal devoted in publishing high-quality papers using multidisciplinary approaches with a strong emphasis on business, economics and finance. It is a triannual journal published in April, August and December and all articles submitted are in English. Our uniqueness focus on the impact of ever-changing world towards the society based on our niche area of research. IJBS follows a double-blind peer-review process, whereby authors do not know reviewers and vice versa. The journal intends to serve as an outlet with strong theoretical and empirical research and the papers submitted to IJBS should not have been published or be under consideration for publication elsewhere.