Abstract:

Extending from the existing literature that has highlighted the distinctive features of Asian companies, this study attempts to link these special features with their financing behavior from an agency theoretical perspective. Drawing on the evidence indicating that prominent features of Asian companies notably are concentrated ownership with extensive family ownership and dominance of controlling shareholders controlled by two main ethnic groups in Malaysia, namely the Chinese and the Malays, this study also attempts to investigate the effect of ownership and ethnicity on financing decisions of Malaysian family firms. This study employs literature on family business and explains the possible impact of family and business reciprocity coupled with the issue of ethnicity within a family firm that drives the uniqueness of the firm itself. It is believed that the special characters, such as strong family ties, undiversified family holdings, and a strong desire to hand over the company to subsequent successors and higher concerns to maintain family reputation tend to offer different incentive structures, at least in regards to capital structure. Agency theory suggests that family companies have lower agency problems because owner-manager interests tend to be more consensual, thus giving creditors greater confidence to lend. Although this study is qualitative in nature, but it is unique, because it deals with the determinants of capital structure that is almost not found in developed countries. This provides an alternative explanation for financial variation and provides evidence of the capital structure theory solitary.