The Effect of Ownership Structure, Board Size and Firm Value on Corporate Financial Leverage and Dividends Policy: An Applied Study

The paper aims to investigate the empirical linkage between the explanatory variables, ownership structure and one of the corporate governance mechanism namely board size and firm value on the most important corporate financial decisions – financial  leverage and dividend policy in an emerging market, Egypt.
To achieve the research objectives, we used a sample of 50 non-financial firms chosen from the more actively traded listed Egyptian firms on the Egyptian Stock Exchange (EGX) from 2015 to 2020. Measure of corporate financial leverage employed is the total debt/assets ratio. The measures of ownership structure include managerial ownership, institutional ownership, block holder's ownership and foreign ownership. The firm value is computed by contrasting the market value of equity (capital) with the adjusted value of equity. Similarly, the effect of some control variables like firm size, profitability and Tobin’s Q has been also examined. The multiple regression models (OLS) were used to analyze the data and to test the research hypotheses using the published annual financial reports and other related data.
Results show for the first hypothesis tested, that managerial ownership and block holder ownership are significantly positively related to corporate leverage, while institutional ownership and foreign ownership are significantly negatively related to corporate leverage, whereas board size is found to be insignificantly negatively correlated and firm value is positively correlated with financial leverage. Firm size used as a control variable is found to be significantly positively correlated with financial leverage, while profitability (ROA) is found to be negatively correlated. For the second hypothesis tested, results show that managerial ownership and foreign ownership are significantly positively related to corporate dividend policy, while block holder ownership and institutional ownership are negatively related to corporate dividend policy. Board size, firm value, all control variables (firm size, Tobin’s Q and ROA) are found to be significantly positively correlated with dividend yield.
The empirical findings suggest that board size and ownership structure playing an important role and influence their power in deciding the Egyptian corporate financial decisions regarding the financial leverage and dividend decisions.