Large Shareholders as a Tool of Corporate Governance: A Panel Study for Turkish Firms

Author: Arslan, Özgür

Source: Globalization and Social Responsibility, Issue data not provided , pp. 96-115(20)

Publisher: Cambridge Scholars Publishing in association with GSE Research

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Abstract:

Agency costs arise from the separation between ownership and control inside a company. If there is not a monitoring mechanism on managers, the decisions taken by them may be less beneficial for shareholders or creditors. Especially the financing decisions taken by them are exposed to agency problems because of being at expense of creditors. Exerting a control on managers deters moral hazard by enabling lenders to detect the managers’, who are borrowers of credit, opportunistic behaviour. At this point, this treatment to agency cost hypothesis is linked with maturity structure of corporate debt in literature (See; Jensen and Meckling, 1976; Titman and Wessel, 1988; Whited, 1992) and it is argued that choice of debt maturity structure helps to reduce agency cost by mitigating conflicts of interests between lenders and managers (Myers, 1977; Barnea, Haugen and Senbet, 1980; Fama, 1980; Harris and Raviv, 1991). Thus, when creditors feel that managers are not controlled in firm they try to reduce the agency cost through short term debt either by threat of liquidation or renegotiation. Consequently, so as to enable creditors to monitor managers, firms may be subject to maturities of debt that are not optimal for their structure.

La Porta et al. define corporate governance as set of tools for shareholders and investors of a firm to protect themselves from the mis-usage of funds by managers. This paper focuses on presence of a large shareholder as one of these tools. This paper aims to see if a large shareholder in a firm serves as an efficient corporate governance tool by solving the agency problem between lenders and managers. A large shareholder in a firm is a controlling body for reducing agency problems by establishing a monitoring mechanism on managers through forcing them to make value maximizing financing choices which will relieve creditors. Therefore, firms under such mechanisms will not suffer from inappropriate debt maturity structures, which is overwhelmingly short term debt for Turkish firms, in order to monitor management. This study is forming an association between corporate governance and corporate debt maturity structure through presence of a large shareholder. Furthermore, little has been done on the field of debt maturity structure by using non US data. However, Turkey's diverse financial and legal environment requires the debt maturity structure of Turkish companies to be investigated.

Document Type: Research Article

Publication date: January 1, 2006

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  • Globalization and Social Responsibility
    There are however many different perspectives upon what is meant by corporate social responsibility and how this might be applied within organisations. This book explores some of these different perspectives based upon the experiences of different people in different parts of the world. This book recognises the international scope of the interest in corporate social responsibility both through the contributions made by the authors of the respective chapters, who come from various parts of the world, and also through the international importance of the perspectives offered by these contributors.
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