Influence of Ownership Structure on Finance Leverage: A Study of Australian Firms

Abstract

The present study analyses the relationship between ownership structure and capital structure of a sample of 465 Australian firms for the period 2004 to 2010. An examination of leverage levels show that long-term debt accounts for nearly three-fourths all debt or approximately 13 per cent of total capital for large Australian firms. Global financial crisis appears to have no significant impact on leverage levels of Australian firms. Managerial ownership in Australian firms is very small on an average with less than 1 per cent shareholding held by both independent and non-independent directors. Pooled OLS analysis shows evidence of a significant non-linear relationship between ownership structure and capital structure. Blockholders have a significant positive influence on capital structure but as their shareholding increases, the impact turns to be negative. Managerial ownership on the other hand has no influence on capital structure but has impact on short-term debt levels. This relationship between blockholder ownership and capital structure is spurious and does not persist when endogeneity and unobserved heterogeneity are taken into account. Panel data analysis shows no significant relationship between ownership structure and capital structure of Australian firms.