INSTITUTIONAL OWNERSHIP DEBT POLICY
AND INSIDER OWNERSHIP: A TEST OF AGENCY THEORY
Abstract
This study examines the impact of institutional ownership on debt policy and insider ownership in an integrated framework utilizing a simultaneous system of equation. The primary of interest is institutional ownership, which is hypothesized to have a negative coefficient.This study is consistent with this hypothesis. It’s indicate that increasing institutional ownership can offset the need for debt and concentration of insider ownership to reduce agency conflicts.
The result of this study support the view that debt policy inversely related to insider ownership but not statistical significant. On the other hand, insider ownership positively related to debt policy but not statistical significant. The reasoning behind this conclusion that debt financing can allow manager with high ownership shares to maintain their control over the firm. It’s consisten with financial contracting theory that higher levels of insider ownership are conducive to greater use of debt financing. In this study, institutional ownership size and earning volatility are important factors to determine debt policy and statistical significant by 1%, but stock volatility and institutional ownership are important factors to determine insider ownership and significant by 1%. This study support the research of Bathala, Moon,and Rao (1994).
Keywords: Institutional ownership, debt policy, insider and agency conflicts.
AND INSIDER OWNERSHIP: A TEST OF AGENCY THEORY
Abstract
This study examines the impact of institutional ownership on debt policy and insider ownership in an integrated framework utilizing a simultaneous system of equation. The primary of interest is institutional ownership, which is hypothesized to have a negative coefficient.This study is consistent with this hypothesis. It’s indicate that increasing institutional ownership can offset the need for debt and concentration of insider ownership to reduce agency conflicts.
The result of this study support the view that debt policy inversely related to insider ownership but not statistical significant. On the other hand, insider ownership positively related to debt policy but not statistical significant. The reasoning behind this conclusion that debt financing can allow manager with high ownership shares to maintain their control over the firm. It’s consisten with financial contracting theory that higher levels of insider ownership are conducive to greater use of debt financing. In this study, institutional ownership size and earning volatility are important factors to determine debt policy and statistical significant by 1%, but stock volatility and institutional ownership are important factors to determine insider ownership and significant by 1%. This study support the research of Bathala, Moon,and Rao (1994).
Keywords: Institutional ownership, debt policy, insider and agency conflicts.
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