Capital Structure, Managerial Ownership and Firm Performance: Evidence from Egypt

Abstract

This paper focuses on an important issue, which has generally received less attention in corporate governance literature, being the effect of managerial ownership on the relationship between debt and firm performance. By employing a sample of Egyptian listed firms, the generalized least squares method, as a panel data technique, is used to examine the joint effect of debt and managerial ownership on various measures of firm performance (i.e., Tobin’s q and ROA). The results reveal that managerial ownership moderates the relationship between debt and firm performance, with the relationship being negative (positive) in presence (absence) of managerial ownership concentration. The implication of this finding is that the optimal capital structure is more likely to be contingent on contextual variables as well as the roles, power, and stakes of key internal and external actors. Put simply, the effectiveness of one corporate governance mechanism (i.e., debt) is more likely to be contingent on the effect of other existed corporate governance mechanisms, and hence, there is not one best arrangement of either capital structure or ownership structure, but different arrangements are not equally good.