Impact of Managerial and Institutional Ownership on Capital Structure: A Comparison Between China & USA

Abstract

This study seeks to investigate how managerial ownership (MNO) and institutional ownership (INST) affect firm debt financing in the two biggest economies. Using Ordinary Least Squares (OLS) on a panel data sample of developed (USA) and developing (China) economies from 2009-16, we found a non-linear relationship between Managerial ownership and debt for China but not for the USA; a positive relation between Institutional ownership and debt for USA and negative for China. The findings of this study imply that with the development of economies, the role of Institutional shareholders becomes stronger who prefer to rely more on debt financing. However the managerial ownership plays a dominant role when level of managerial ownership is high, irrespective of the level of development.

Keywords: ownership structure; debt financing; managerial ownership; institutional ownership; corporate governance; developed/developing economy