The effect of institutional ownership on capital structure of listed firms in Singapore

Our paper is a contribution to the current understanding of trade-off theory, which states the firms’ optimal choice of capital structure is one that balances the benefit of the tax shield generated by debt and the cost of financial distress. We chose to examine how different proportions of institut...

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Main Authors: De Jong, Ethan Felix, Tan, Tze Liang, Tan, Benjamin Wei Jie
Other Authors: Wu Guiying Laura
Format: Final Year Project
Language:English
Published: Nanyang Technological University 2020
Subjects:
Online Access:https://hdl.handle.net/10356/138502
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Institution: Nanyang Technological University
Language: English
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spelling sg-ntu-dr.10356-1385022020-05-07T09:56:04Z The effect of institutional ownership on capital structure of listed firms in Singapore De Jong, Ethan Felix Tan, Tze Liang Tan, Benjamin Wei Jie Wu Guiying Laura School of Social Sciences guiying.wu@ntu.edu.sg Social sciences::Economic theory Our paper is a contribution to the current understanding of trade-off theory, which states the firms’ optimal choice of capital structure is one that balances the benefit of the tax shield generated by debt and the cost of financial distress. We chose to examine how different proportions of institutional holdings affect the level of debt held by companies. This is based on the assumption that increased institutional ownership would improve corporate governance, which ultimately lowers the cost of financial distress and allows firms to undertake higher levels of debt. We therefore aim to answer the research question: What is the impact of having a larger proportion of institutional investors on the capital structure decisions of firms in Singapore? To answer this question, we utilized a random sample of 305 firms that are listed on the Singapore Exchange, to analyze specific firm characteristics. A First-Difference (FD) regression model was employed to test our hypothesis and study the mechanisms affecting the capital structure. Our findings corroborate those of other academics, who have also found that institutional ownership has a negative or negligible effect on the capital structure of firms, contrary to trade-off theory. Even after further robustness checks, our results still remain unchanged which suggests the presence of other external factors influencing the capital structure decision. Bachelor of Arts in Economics 2020-05-07T09:56:04Z 2020-05-07T09:56:04Z 2020 Final Year Project (FYP) https://hdl.handle.net/10356/138502 en application/pdf Nanyang Technological University
institution Nanyang Technological University
building NTU Library
country Singapore
collection DR-NTU
language English
topic Social sciences::Economic theory
spellingShingle Social sciences::Economic theory
De Jong, Ethan Felix
Tan, Tze Liang
Tan, Benjamin Wei Jie
The effect of institutional ownership on capital structure of listed firms in Singapore
description Our paper is a contribution to the current understanding of trade-off theory, which states the firms’ optimal choice of capital structure is one that balances the benefit of the tax shield generated by debt and the cost of financial distress. We chose to examine how different proportions of institutional holdings affect the level of debt held by companies. This is based on the assumption that increased institutional ownership would improve corporate governance, which ultimately lowers the cost of financial distress and allows firms to undertake higher levels of debt. We therefore aim to answer the research question: What is the impact of having a larger proportion of institutional investors on the capital structure decisions of firms in Singapore? To answer this question, we utilized a random sample of 305 firms that are listed on the Singapore Exchange, to analyze specific firm characteristics. A First-Difference (FD) regression model was employed to test our hypothesis and study the mechanisms affecting the capital structure. Our findings corroborate those of other academics, who have also found that institutional ownership has a negative or negligible effect on the capital structure of firms, contrary to trade-off theory. Even after further robustness checks, our results still remain unchanged which suggests the presence of other external factors influencing the capital structure decision.
author2 Wu Guiying Laura
author_facet Wu Guiying Laura
De Jong, Ethan Felix
Tan, Tze Liang
Tan, Benjamin Wei Jie
format Final Year Project
author De Jong, Ethan Felix
Tan, Tze Liang
Tan, Benjamin Wei Jie
author_sort De Jong, Ethan Felix
title The effect of institutional ownership on capital structure of listed firms in Singapore
title_short The effect of institutional ownership on capital structure of listed firms in Singapore
title_full The effect of institutional ownership on capital structure of listed firms in Singapore
title_fullStr The effect of institutional ownership on capital structure of listed firms in Singapore
title_full_unstemmed The effect of institutional ownership on capital structure of listed firms in Singapore
title_sort effect of institutional ownership on capital structure of listed firms in singapore
publisher Nanyang Technological University
publishDate 2020
url https://hdl.handle.net/10356/138502
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