Journal

International Journal of Accounting and Financial Reporting

ISSN 2162-3082

2013, Vol. 3, No. 2

A nonlinear simultaneous equation analysis of

managerial ownership and debt policy: Evidence from

Tunisian Stock Exchange

Fatma Ben Moussa (Corresponding author)

University of Tunis El Manar,

Faculty of Economic Sciences and Management of Tunis, Tunisia

E-mail: bmoussa_fatma@yahoo.ca

Jameleddine Chichti

Jameleddine Chichti : Business School of Tunis (ESCT), Manouba University, B.P. 2010,

Manouba, Tunisia

Received: November 28, 2013 Accepted: December 12, 2013 DOI: 10.5296/ijafr.v3i2.4637

Abstract

The agency relationship between managers and shareholders has the potential to influence

decision-making in the firm which in turn potentially impacts on firm characteristics such as

leverage. Prior evidence has demonstrated an association between ownership structure and

firm value. This paper extends the literature by examining a further link between ownership

structure and capital structure. Based on a system of simultaneous equations on the basis of a

panel of Tunisian companies listed on the Tunisian stock exchange during the period

2000-2009, our results show that the ownership structure affects the capital structure and vice

versa. In addition, the relationship between debt and managerial ownership is nonlinear.

Keywords: Corporate governance, debt policy, ownership structure, free cash flow

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International Journal of Accounting and Financial Reporting

ISSN 2162-3082

2013, Vol. 3, No. 2

1. Introduction

Questions regarding the interface between corporate finance and corporate governance have,

gained prominence in recent years. Several previous studies have examined the effects of

capital structure on firm performance regardless of the ownership structure (Titman and

Wessels 1988). However, others have evaluated the effects of ownership structure on firm

performance regardless of the capital structure (Mester 1993, Pi and Timme, 1993,...