Does State Ownership Really Matter for Capital Structure in Selected G20 Economies across the Development Spectrum?

This study investigates the effect of state ownership on the capital structure decisions of enterprises. For this purpose, financial and accounting data from 252 state-owned and 6,503 non-state owned firms in selected G20 countries has been gathered for a period of 2011-2015. Our analysis is motivated by the lack of this evidence for such an important group of economies. The group, collectively, not only fall in the top 33 global economies, but their members also forms and constitute G-7, BRIC (Brazil, Russia, India and China), G-4 (Brazil, Germany and India) and N-11 (Indonesia, South Korea and Turkey). Pooled regressions estimated using OLS techniques are performed to study the relationship between ownership and capital structure across G20 countries. Beside the effect of ownership structure, we also investigate and quantify the effects of several firm specific variables on capital structure of firms in selected G20 countries. Results indicate that state ownership is positively associated with leverage in all the selected G20 countries. However, this phenomenon changes when countries are considered according to their income levels. We find that state-owned enterprises in high income countries carry more debt, while the opposite is true for lower middle-income countries. Estimated coefficients of the other determinants of the capital structure show that tangibility and size positively affect the leverage. While, profitability and growth have a significant negative affect on the leverage. The association between firm specific determinants and leverage were found to be consistent, irrespective to their level of income and according to trade-off and pecking order theory. However, results were found to be divergent when effects of various firm specific variables were compared between state and non-state-owned enterprises across the development spectrum. Hence, our analysis shows that firm specific variables and ownership structure are important determinants of capital structure in selected G20 countries and across the development spectrum. Our results provide a number of policy and managerial implications. We showed and learned that state ownership is a significant factor affecting company’s capital structure decision. However, this association of state ownership with capital structure decision is not same across the development spectrum. The implication is that in counties with better legal environment, developed financial markets and more stable economic conditions, state owned enterprises are likely to take more debt. On the other hand the negative influence of state ownership in lower middle income countries implies that governance in these economies is poor and state institutions carry less debt. Keywords: Capital structure, Level of development, Non-state-owned enterprises, Profitability, Size, State-owned enterprises, Tangibility