Descriptive model of influence of ownership concentration on the corporate capital management

Oleksandra Laktionova; Olha Rudenok

doi:10.31520/2616-7107/2021.5.1-5

Oleksandra Laktionova Vasyl' Stus Donetsk National University, Vinnytsia, Ukraine http://orcid.org/0000-0001-6472-6503
Olha Rudenok Vasyl' Stus Donetsk National University, Vinnytsia, Ukraine http://orcid.org/0000-0002-2001-400X

DOI: https://doi.org/10.31520/2616-7107/2021.5.1-5

Abstract

Introduction. Significantly important factors that define the company's efficiency are the structure of proprietorship and capital structure. Therefore, the item of the relationship between these factors is reflected in the works of scientists. The necessary issue is the pick of correlation between own and borrowed funds since the optimum structure of capital leads to magnification of the market value based on company performance results. The relevance of deciding on the capital structure determines the feasibility of determining the effect of concentrated ownership on capital structure. In an unstable political, social, legal, and economic environment, ownership concentration turns into a compensatory mechanism that fills numerous institutional gaps. Concentrated possession enables it possible to influence the capital structure through agency costs.

Aim and tasks. The main purpose of the article is to determine the link between concentration level of ownership and capital structure, between ownership structure and leverage. This paper substantiates the problem of “principal-agent” to identify problematic issues to further develop recommendations to strengthen appropriate market incentives.

Results. The paper shows that the problem of the “principal-agent” exists independently of the rate of ownership concentration in the corporation. Agency costs are one of the determining factors in the composition of a corporation’s capital. This paper has clearly shown approaches to identifying the nature of the effect of ownership structure on the capital structure. It has been established how this influence is carried out, taking into account the mismatch of various groups of owners' interests and the effect of their “entrenching”, as well as the consequences of monitoring and expropriation with a highly concentrated structure of ownership.

Conclusions. The choice of the ratio of own and borrowed funds depends on the actual ownership structure. Assumptions are made, the increase in the corporation's leverage owing to an increase in the blockholders shares. There is a reciprocal interconnection between leverage and agency costs. Because changing leverage is an instrument that helps to overcome agency conflicts and not just only proves is the result of their presence. The selected special characteristics gave grounds to conclude that the adjustment of the ratio of a company's debt to the value of its equity also depends on the goal of management solutions, as well as the current facility and prospects of the corporation.

Keywords:

ownership structure, capital structure, corporation, leverage, corporate governance, agency costs.

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