Does corporate groups accrue higher leverage: Emerging market evidence

Authors

  • Safi Ullah Khan Universiti Teknologi Brunei, Brunei Darussalam
  • Mohammad Faisal Rizwan International Islamic University Islamabad, Pakistan
  • Pg Abdul Mutalib Bin Pg Hj Kamaluddin Universiti Teknologi Brunei, Brunei Darussalam

DOI:

https://doi.org/10.32350/JFAR/0201/02

Keywords:

corporate group, capital structure, ownership structure

Abstract

This article explores the capital structure composition of group-affiliated firms. We find that group member firms choose to accrue higher debt ratios compared to non-group counterparts. Further disentangling the higher debt ratios of group-affiliates, we find risk-sharing or co-insurance effect whereby business groups enable member firms to share risks through income-smoothing and intra-group reallocation of resources. Our results suggest that business groups act as internal capital markets, assist affiliated firms overcome financial constraints, and ease access to external capital. Lastly, our study shows that group affiliations positively contribute to firms’ better financial performance relative to the non-group firms.

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JFAR Volume 2 Issue 1 February 2020

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Published

2020-02-28

How to Cite

Khan, S. U., Rizwan, M. F., & Pg Hj Kamaluddin, P. A. M. B. (2020). Does corporate groups accrue higher leverage: Emerging market evidence. Journal of Finance and Accounting Research, 2(1), 28–64. https://doi.org/10.32350/JFAR/0201/02

Issue

Vol. 2 No. 1: Spring 2020

Section

Articles

License

JFAR follows an open-access publishing policy and full text of all articles is available free, immediately upon acceptance. Articles are published and distributed under the terms of the Creative Commons Attribution 4.0 International License. Thus, work submitted to UMT Journals implies that it is original, unpublished work of the authors; neither published previously nor accepted/under consideration for publication elsewhere. On acceptance of a manuscript for publication, a corresponding author on the behalf of all co-authors of the manuscript will sign and submit a completed Author Consent, Copyright, and Declaration Form.