The Mediation Effect of Financial Leverage on the Relationship between Ownership Concentration and Financial Corporate Performance

Document Type : Research Paper

Authors

Department of Accounting, Kerman Branch, Islamic Azad University, Kerman, Iran

Abstract

The purpose of this paper is examining the impact of financial leverage as a mediation variable on the relationship between ownership concentration and financial corporate performance. To test the hypotheses, multiple regression analysis is used. The statistical population of this research is all listed companies in Tehran Stock Exchange. However, data were available only for 60 companies during the period of 2004-2015. The research results show that the ownership structure negatively affects the financial corporate performance. Moreover, the financial leverage explains the relationship between the ownership concentration and financial corporate performance. It is recommended to the investors and other users of financial statements to increase the quality of their portfolio decisions, by taking into account the hidden impact of financial leverage on the relationship of ownership concentration and the companies’ performance, in addition to the direct impact of ownership concentration on the companies’ performance.

Keywords

Main Subjects


Asadi, G. H., Mohammadi, S., & Khorram, E. (2011). The relationship between capital structure and ownership structure. Journal of accounting Knowledge, 2(4), 29-48. (In Persian)
Baker, M., & Xuan, Y. (2016). Under new management: Equity issues and the attribution of past returns. Journal of Financial Economics, 121(1), 66-78.
Balsmeier, B., & Czarnitzki, D. (2015). Ownership concentration, institutional development and firm performance in Central and Eastern Europe. Managerial and Decision Economics. DOI: 10.1002/mde.2751.
Bhattacharya, P. S., & Graham, M. A. (2009). On institutional ownership and firm performance: A disaggregated view. Journal of Multinational Financial Management, 19(5), 370-394.
Butt, S. A, & Hasan, A. (2009). Impact of ownership structure and corporate governance on capital structure of Pakistani listed companies. International Journal of Business & Management, 4(2), 50-57.
Céspedes, J., González, M., & Molina, C. A. (2010). Ownership and capital structure in Latin America. Journal of Business Research, 63(3), 248-254.
Chen, J. J. (2004). Determinants of capital structure of Chinese-listed companies. Journal of Business Research, 57(12), 1341-1351.
Cornett, M. M., Marcus, A. J., Saunders, A., & Tehranian, H. (2007). The impact of institutional ownership on corporate operating performance. Journal of Banking & Finance, 31(6), 1771-1794.
Demsetz, H., & Villalonga, B. (2001). Ownership structure and corporate performance. Journal of Corporate Finance, 7(3), 209-233.
El-Masry, A., Abdelsalam, O., & Elsegini, S. (2008a). Board composition, ownership structure and dividend policies in an emerging market: Further evidence from CASE 50. Managerial Finance, 34(12), 953-964.
El-Masry, A., Al-Najjar, B., & Taylor, P. (2008b). The relationship between capital structure and ownership structure: New evidence from Jordanian panel data. Managerial Finance, 34(12), 919-933.
Faccio, M., Marchica, M. T., & Mura, R. (2016). CEO gender, corporate risk-taking, and the efficiency of capital allocation. Journal of Corporate Finance, 39, 193-209. http://dx.doi.org/10.1016/j.jcorpfin.2016.02.008.
Fazlzadeh, A., Tahbaz Hendi, A., & Mahboubi, K. (2011). The examination 
of the effect of ownership structure on firm performance in listed firms of Tehran stock exchange based on the type of the industry. International Journal of Business and Management, 6(3), 249-266.
Foong, S. Y., & Idris, R. (2012). Leverage, product diversity and performance of general insurers in Malaysia. The Journal of Risk Finance, 13(4), 347-361.
Fosu, S. (2013). Capital structure, product market competition and firm performance: Evidence from South Africa. The Quarterly Review of Economics and Finance, 53(2), 140-151.
Ganguli, S. K. (2013). Capital structure-does ownership structure matter? Theory and Indian evidence. Studies in Economics and Finance, 30(1), 56-72.
Gill, A., Biger, N., & Mathur, N. (2010). The relationship between working capital management and profitability: Evidence from the United States. Business and Economics Journal, 10(1), 1-9.
González, V. M. (2013). Leverage and corporate performance: International evidence. International Review of Economics & Finance, 25, 169-184.
Gutiérrez, L. H., & Pombo, C. (2009). Corporate ownership and control contestability in emerging markets: The case of Colombia. Journal of Economics and Business, 61(2), 112-139.
Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2009). Mutivariate Data Analysis. New York, NY: Pearson.
Hribar, P., Jenkins, N. T., & Johnson, W. B. (2006). Stock repurchases as an earnings management device. Journal of Accounting and Economics, 41(1), 3-27.
Javed, Z. H., Huma Rao, H., Akram, B., & Nazir, M. F. (2015). Effect of financial leverage on performance of the firms: Empirical evidence from Pakistan. SPOUDAI Journal of Economics and Business, 65(1-2), 87-95.
Kadapakkam, P. R., Meisami, A., & Wald, J. K. (2016). The debt trap: Wealth Transfers and debt‐equity choices of junk‐grade firms. Financial Review, 51(1), 5-35.
Karaca, S. S., & Eksi, I. H. (2012). The relationship between ownership structure and firm performance: An empirical analysis over Istanbul Stock Exchange (ISE) listed companies. International Business Research, 5(1), 172.
Leung, S., Richardson, G. & Jaggi, B. (2014). Corporate board and board committee independence, firm performance, and family ownership concentration: An analysis based on Hong Kong firms. Journal of Contemporary Accounting & Economics, 10(1), 16-31.
Mashayekhi, B., & Bazaz, M. S. (2008). Corporate governance and firm performance in Iran. Journal of Contemporary Accounting & Economics, 4(2), 156-172.
Mathieu, J. E., & Taylor, S. R. (2006). Clarifying conditions and decision points for mediational type inferences in organizational behavior. Journal of Organizational Behavior, 27(8), 1031-1056.
Moradzadehfard, M., & Adili, M. (2011). The relationship between Institutional stock ownership and intellectual capital performance of listed companies in Tehran Stock Exchange. Journal of Accounting Advances, 3(2), 141-162.
Nguyen, H. T. M., & Giang, T. T. M. (2015). Triangle relationships among ownership structure, dividend policy and firm performance: An empirical study in Vietnamese companies. Asian Social Science, 11(27), 195.
Omran, M. M., Bolbol, A., & Fatheldin, A. (2008). Corporate governance and firm performance in Arab equity markets: Does ownership concentration matter? International Review of Law and Economics, 28(1), 32-45.
Parker, P. D., Swanson, N. J., Dugan, M. T., & Jahera, J. S. (2016). Management of pension discount rate and financial health. Journal of Financial Economic Policy, 8(2), 142-162.
Pouraghajan, A., Malekian, E., Emamgholipour, M., Lotfollahpour, V., & Bagheri, M. M. (2012). The relationship between capital structure and firm performance evaluation measures: Evidence from the Tehran Stock Exchange. International Journal of Business and Commerce, 1(9), 166-181.
Rezaei, M., & Jafari, S. M. (2015). Identifying the relationship between financial leverage and cash flows of the companies listed in Tehran Stock Exchange. Indian Journal of Science and Technology, 8(27). DOI: 10.17485/ijst/2015/v8i27/82942.
Sadeghi, H., & Rahimi, P. (2012). The relationship between ownership structure and corporation performance of listed companies in Tehran Stock Exchange; using Structural Equation Modeling Journal of Financial Accounting Research, 4(14), 89-102.
Shah Fasih Ur Rehman, S. (2013). Relationship between financial leverage and financial performance: Empirical evidence of listed sugar companies of Pakistan. Global Journal of Management and Business Research, 13(8), 33-40.
Shahveisi, F., Khairollahi, F., & Alipour, M. (2016). Does ownership structure matter for corporate intellectual capital performance? An 
empirical test in the Iranian context. Eurasian Business Review, 7(1), 67-91.
Wabwile, E. S., Chitiavi, M. S., Alala, O. B, & Douglas, M. (2014). Financial Leverage and performance variance among banks: evidence of tier 1 commercial banks listed on Nairobi Security Exchange Kenya. International Journal of Business and Management Invention, 3(4), 01-13.
Yu, M. (2013). State ownership and firm performance: Empirical evidence from Chinese listed companies. China Journal of Accounting Research, 6(2), 75-87.