How does ownership structure affect capital structure and firm value?
Recent evidence from East Asia¹

Abstract

The present paper examines the effects of ownership structures on capital structure and firm valuation. It argues that the effects of separation of control from cash flow rights on capital structure and firm value also depend on the separation of control from management as well as on legal rules and enforcement defining investors' protection. We obtain firm-level panel data (three stage least squares, 3SLS) estimates from four of the East Asian countries worst affected by the last crisis. There is evidence that the general wisdom that higher control than cash flow rights may lower firm value may be reversed among owner-managed family firms in the sample countries.JEL classifications: G32, L25. Keywords: Asian crisis, corporate governance, separation of control and cash flow rights, separation of control and management, owner managed family firms, capital structure, firm value, 3SLS estimates with error components, simultaneity bias. 269786. The research is funded by the ESRC grant number RES-000-22-0200. We are very grateful to Stijn Claessens for the ownership data and also for his very helpful comments on an earlier draft. We owe extensive gratitude to the editor Erik Berglöf and an anonymous referee of this Journal for very constructive comments at different stages. We would also like to thank John Bennett, Tomek Mickiewicz, Kunal Sen, Ajit Singh and the participants in the ESRC workshop on 'Corporate Governance, Corporate Restructuring and Corporate Finance in Transition Economies' held in Brunel University, London in September 2005 for their comments and advice. We are however solely responsible for any errors. 536 D riffield, M ahambare and P al

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