Capital structure, ownership concentration and firm performance: Evidence of reverse causality hypothesis in asean countries

This study aims to examine effect of capital structure and ownership structure on firm performance. In addition, this study also examines the existence of reverse causality of the relation between capital structure and performance of firms in three ASEAN countries. We test the reverse causality hypothesis of firm performance to capital structure, which is viewed in light of two competing hypotheses: the efficiency-risk hypothesis and franchise-value hypothesis. In general, the results support the agency–cost hypothesis, and confirm reverse causality hypothesis in in the sample firms, through the existence of entrenchment effect in firms with the lowest and highest level of ownership concentration and the franchise value hypothesis.