Corruption, debt financing and corporate ownership

Purpose – The purpose of this paper is to examine the influence of perceived corruption on debt financing and ownership structure decisions of firms within the context of ten African countries. Design/methodology/approach – The paper analyses 15-year (1996-2010) data pertaining to 556 non-financial firms drawn from ten African countries using models that link firm financing, ownership structure, and perceived corruption. It uses robust procedures including system-generalized method of moments, general least square, and Logistic (LOGIT) regression. Findings – The study finds evidence that perceived corruption is important in shaping debt financing and ownership structure decisions of firms in Africa. Particularly, it finds that: first, higher levels of perceived corruption lead to firms using higher levels of short-term leverage, lower levels of long-term leverage and debts with shorter maturities and second, firms in countries with higher levels of perceived corruption respond to weaknesses in the law enforcement institutions through higher ownership concentration and controlling block shareholding. Research limitations/implications – As in most empirical studies, this study focused on listed firms. Nonetheless, future studies that focus on non-listed firms could add additional insights to the extant literature. Practical implications – The study provides empirical support for the argument that perceived corruption in a country distorts corporate governance. The policy implication of the findings is that governments, by taking steps that curb corruption, could enhance corporate governance by inducing firms into optimal debt financing and ownership structure decisions. Originality/value – The study focuses on firms in African countries for which studies such as this are non-existent.