A nonlinear simultaneous equation analysis of managerial ownership and debt policy : Evidence from Tunisian Stock Exchange

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.