Title

Ownership structure and financial constraints : evidence from a structural estimation

Document Type

Journal article

Source Publication

Journal of Financial Economics

Publication Date

11-1-2011

Volume

102

Issue

2

First Page

416

Last Page

431

Keywords

Financial constraints, Insider excess control rights, Ownership structure

Abstract

This article examines the impact of the divergence between corporate insiders' control rights and cash-flow rights on firms' external finance constraints via generalized method of moments estimation of an investment Euler equation. Using a large sample of U.S. firms during the 1994-2002 period, we find that the shadow value of external funds is significantly higher for companies with a wider insider control-ownership divergence, suggesting that companies whose corporate insiders have larger excess control rights are more financially constrained. The effect of insider excess control rights on external finance constraints is more pronounced for firms with higher degrees of informational opacity and for firms with financial misreporting, and is moderated by institutional ownership. The results show that the agency problems associated with the control-ownership divergence can have a real impact on corporate financial and investment outcomes.

DOI

10.1016/j.jfineco.2011.06.001

Print ISSN

0304405X

Publisher Statement

Copyright © 2011 Elsevier B.V.

Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Lin, C., Ma, Y., & Xuan, Y. (2011). Ownership structure and financial constraints: Evidence from a structural estimation. Journal of Financial Economics, 102(2), 416-431. doi: 10.1016/j.jfineco.2011.06.001