The agency relationship between managers and shareholders has the potential to influence decision-making in the firm which in turn potentially impacts on firm characteristics such as value and leverage. Prior evidence has demonstrated an association between ownership structure and firm value. This paper extends the literature by examining a further link between ownership structure and capital structure. Using an agency framework, it is argued that the distribution of equity ownership among corporate managers and external blockholders may have a significant relation with leverage. The empirical results provide support for a positive relation between external blockholders and leverage, and non-linear relation between the level of managerial share ownership and leverage. The results also suggest that the relation between external block ownership and leverage varies across the level of managerial share ownership. These results are consistent with active monitoring by blockholders, and the effects of convergence-of-interests and management entrenchment.

This study examines the relationship between firm corporate social responsibility (CSR) and CEO confidence. Research shows that CSR has a hedging feature. Research also shows that more confident CEOs underestimate firm risks, which, in turn, leads them to undertake relatively less hedging. Consistent with this, we find that CEO confidence is negatively related to the level of CSR. Closer analysis shows that this effect is stronger in the institutional aspects of CSR, such as community and workforce diversity, rather than in the technical aspects of CSR, such as corporate governance and product quality. Our results are robust to different competing explanations, including narcissism, which refers in this context to CEOs who engage in CSR to attract attention and alternative proxies for CSR and CEO confidence.JEL Classification: G02, G32, G34

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Our study examines whether there are systematic differences in standard leverage determinants for a sample of Japanese multinational (MNCs) and domestic corporations (DCs). We find that on a univariate basis Japanese MNCs differ significantly on most variables relative to Japanese DCs. These variables include leverage, age, collateral value of assets, free cash flows, foreign exchange risks, growth, non-debt tax shields, political risks, profitability and size. Business risks are not found to be significantly different between the two groups of organizations. When modeling capital structure and the determinants of capital structure we find that Japanese multinationals have significantly less leverage than Japanese DCs, and that multinationality is an important aspect of leverage for Japanese firms. We find that business risks are not significant for modeling capital structure of domestic firms but they are for multinationals and foreign exchange risks are not significant for multinationals but are significant for domestic firms. Business risks are negatively related to leverage for multinationals and we document that significant positive leverage effects of foreign exchange risks and size are subsumed by the negative effect of business risks to explain the lower leverage experienced by Japanese multinationals relative to Japanese DCs. The lack of significance of foreign exchange risks for DCs can be explained by economies of scale in risk management, such as derivatives. Domestic firms seem to manage increased foreign exchange risks through lower leverage rather than derivative use. On the other hand, the larger multinationals can take advantage of economies of scale in risk management. Consequently, foreign exchange risks of multinationals can be managed through derivatives and other risk management operations and not reduced leverage.

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