The simultaneous effect of ownership structure on capital structure and dividend policy and the moderating role of growth opportunities, corporate risk and market conditions

The corporate finance literature verifies that shareholders use dividend policy and capital structure as monitoring mechanism to mitigate agency problems at both levels of conflicts: shareholders-managers and minority-majority shareholders. However, theories supported by empirical studies also introduce other strands of motives underlying these policies and the necessity of addressing them simultaneously. Therefore, this study examined the effect of corporate ownership structure on capital structure and dividend policy simultaneously. It also examined the moderating role of growth opportunity, corporate risk, and market condition as non-monitoring motives behind the adoption of a specific capital structure and dividend policy. This study utilized 407 Malaysian-listed firms over the period from 2012 to 2015 and adopted simultaneous modeling using a twostage least square (2SLS) regression techniques. The findings show that both dividend and capital structure policies have positive impacts on each other. The substantial, government and foreign ownership affect dividends positively and capital structure negatively. On the other hand, the bidirectional agency effect of family and managerial ownership distorts their effect on both dividends and capital structure. However, growth opportunities are found to moderate the dividends relationship with substantial, government and foreign ownerships negatively. This indicates optimal reinforcement of monitoring mechanism and better alignment between managers, majority and minority shareholders. In addition, the interaction of family and managerial ownership with growth opportunities is found to be positive, indicating the likelihood of expropriation of wealth which forces family and managerial shareholders to pay higher dividends and rely on external finance to fund the growth. Furthermore, corporate risk moderates the effect of substantial and government ownerships on dividends negatively and on capital structure positively. Finally, the market condition is found to only moderate the relationship between capital structure and ownership structure. The study provides various theoretical and practical implications to improve corporate governance and corporate financial policies