Does ethnicity matters in capital structure decision in family firms? Overview of agency theory

• Main Authors: Ahmad, Z. (Author), Yusof Ali, N. (Author)
• Format: Article
• Language: English
• Published: IBIMA Publishing 2021
• Series: IBIMA Business Review
• Subjects: Agency theory; Bumiputera; Ethnicity; Family firms; Leverage
• Online Access: View Fulltext in Publisher; View in Scopus

 Drawing on the evidence indicating that prominent features of Asian companies are notably the concentrated ownership with extensive family ownership and dominance of controlling shareholders controlled by two main ethnic groups in Malaysia, namely the Chinese and the Malays, this study attempts to investigate the effect of ownership and ethnicity on the financing decisions of Malaysian family firms. This study employs literature on family businesses and explains the possible impact of family and business reciprocity coupled with the issue of ethnicity within a family firm that drives the uniqueness of the firm itself. It is believed that the special characters, such as strong family ties, undiversified family holdings, and the strong desire to hand over the company to subsequent successors as well as the higher concerns to maintain the family reputation tend to offer different incentive structures, at least in regards to the capital structure. The agency theory suggests that family companies have lower agency problems because the owner-manager interests tend to be more consensual, thus giving creditors greater confidence to lend. Although this study is qualitative in nature, it is unique, because it deals with the determinants of the capital structure that is almost not found in developed countries. This provides an alternative explanation for the financial variation and provides evidence on the universality of the capital structure theory. Copyright © 2021. Noorhayati YUSOF ALI and Zuriyati AHMAD. Distributed under Creative Commons Attribution 4.0 International CC-BY 4.0