Corporate governance, ownership structure and capital structure: evidence from Chinese real estate listed companies

• Pages: 759-783
• DOI: https://doi.org/10.1108/IJAIM-04-2020-0042
• Date: 07 July 2020
• Published date: 07 July 2020
• Author: Yi Feng,Abeer Hassan,Ahmed A. Elamer
• Subject Matter: Accounting methods/systems,Accounting/accountancy

Corporate governance, ownership

structure and capital structure:

evidence from Chinese real estate

listed companies

Yi Feng

Adam Smith Business School, University of Glasgow, Glasgow, Scotland, UK

Abeer Hassan

Department of Accounting, Finance and Law,

Institute for Accounting and Financial Markets, School of Business and Enterprise,

University of the West of Scotland, Paisley, UK, and

Ahmed A. Elamer

Brunel Business School, Brunel University London, London, UK and

Department of Accounting, Faculty of Commerce, Mansoura University,

Mansoura, Egypt

Abstract

Purpose –This paper aims to contributeto the existing capital structure and board structure literatureby

examiningthe relationship among corporate governance,ownership structure and capitalstructure.

Design/methodology/approach –The paper uses a panel data of 595 f‌irm-year observations from a

unique and comprehensive data set of 119 Chinese real estate listed f‌irms from 2014 to 2018. It uses f‌ixed

effect and randomeffect regression analysis techniques to examine the hypotheses.

Findings –The results show that the board size, ownership concentration and f‌irm size have positive

inf‌luences on capital structure. State ownership and f‌irm prof‌itability have inverse inf‌luences on capital

structure.

Research limitations/implications –The f‌indings suggest that better-governed companies in the

real estate sector tend to have better capital structure. These f‌indings highlight the unique Chinese

context and also offer regulators a strong incentive to pursue corporate governance reforms forma lly

and jointly with the ownership structure. Finally, the results suggest investors the chance to shape

detailed expectations about capital structure behavior in China. Future research could investigate

capital structure using different arrangement, conducting face-to-face meetings with the f‌irm’sdirectors

and shareholders.

Practical implications –The f‌indings offer support to corporate managers and investors in

forming or/and expecting an optimal capital structure and to policymakers and regulators for

ratifying laws and developing institutional support to improve the effectiveness of corporate

governance mechanisms.

Originality/value –This paper extends, as well as contributes to the current capital structure and

corporate governance literature, by proposing new evidence on theeffect of board structure and ownership

structure on capital structure. The results will help policymakers in different countries in estimating the

suff‌iciencyof the available corporate governance reformsto improve capital structure management.

Keywords Corporate governance, Capital structure, Board structure, Agency theory,

Ownership structure

Paper type Research paper

Chinese real

estate listed

companies

759

Received2 April 2020

Revised2 June 2020

Accepted8 June 2020

InternationalJournal of

Accounting& Information

Management

Vol.28 No. 4, 2020

pp. 759-783

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-04-2020-0042

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1834-7649.htm

1. Introduction

Capital structure, as a critical area affecting the overall operating level of corporates, has

been a focus in the f‌ield of corporate f‌inance and accounting(Abor and Biekpe, 2007;Huang,

2019;Neves et al., 2020).One of the motivations of capital structure management is to reduce

capital cost and maximize the shareholders’interests (Danso et al.,2019;Uwuigbe, 2014).

Corporate governance, on the other hand, is a mechanism to maximize shareholder value

through organizational’management, which has always been related to agency problems

(Adel et al.,2019;AlHares, 2020;AlHares et al.,2020;Gerged and Elheddad, 2020;Gerged

and Agwili, 2020;Gerged et al.,2018;Ullah et al.,2019;Uwuigbe, 2014). Corporate

governance seems to affect the capital structure and plays an important role in corporate

f‌inancing decisions (Haqueet al.,2011). Firms can achieve their corporate objectives,protect

shareholders rights and meet legal compliances through a strong corporate governance

structure (Alshbili and Elamer, 2019;Granado-Peir

o and L

opez-Gracia, 2017;Elamer et al.,

2020;Elmagrhi et al., 2018). Specif‌ically, corporate governance aims to ensure that

opportunistic behavior does not occur, by mitigating agency problems that could involve

insiders (manager) and outsiders (e.g. shareholders, debt holders, investors, etc.) (ELdaly,

2012;Eldaly and Abdel-Kader, 2018). Moreover, it helps the creation of particular skill

required in strategic decisions (incentive to f‌irm-specif‌ic investment) and limit problems of

asymmetric information (Hassan et al., 2019,2020;Muttakin et al., 2020;Yu and Wang,

2018).

Despite ample of evidence on the determinantsof capital structure, extant research (Abor

and Biekpe, 2007;Huang, 2019;Neves et al.,2020) argues that the capital structure decision

is a puzzle for accounting and f‌inance researchers.This puzzle is because of different capital

structure theories and/or different quantitative regression models lead to inconclusive

results (Hussainey and Aljifri, 2012). Thus, this study investigates how corporate

governance mechanisms may improve capital structure management because of three

motives. Firstly, according to agency theory, agency cost plays an important role in both

capital structure and corporate governance decisions related to f‌inancial policy. (Granado-

Peir

o and L

opez-Gracia, 2017;Boatenget al., 2017;Chow et al.,2018;Li and Song, 2018;Long

and Huang, 2020;Yu and Wang, 2018). Second, while thereare many studies focused solely

on corporate structure (Brailsford et al., 2002) or corporate governance (Abor and Biekpe,

2005;Ganiyu and Abiodun, 2012;Ali et al.,2014), few studies covered the relationship

between them (Butt and Hasan, 2009). Our paper considers the inf‌luences of both board

structure [board size, board independence and chief executive off‌icer (CEO) duality] and

ownership structure (ownership concentration (OC), management ownership and state

ownership) on capital structure. Third, the results of the few studies that covered the

relationship betweencorporate governance and capital structureare inconsistent.

On the one hand, a strand of the literature suggests a negative relation between

corporate governance mechanisms and capital structure. For instance, Arping and

Sautner (2010) f‌ind a signif‌icant decrease in debt ratio due to the change in corporate

governance codes in the Netherland. They suggest that effective governance leads to

a lower level of debt. Jiraporn et al. (2012) show that when managers are more

embedded with poor governance, f‌irms be likely to have considerably more debt.

They conclude that f‌irms are using the capital structure as a substitute for corpora te

governance in their effort to attenuate agency problems. On the other hand, another

strand of literature found a positive relation between corporate governance

mechanisms and capital structure. For example, Ghosh et al. (2011) f‌ind that self-

serving managers favor of use less debt. They suggest that self-interested managers

use lower debt to attenuate liquidity risk and continue their capacity to further

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