OWNERSHIP CONCENTRATION AND

LEVERAGE IN EMERGING MARKETS

Hoang Linh Nguyen, Nevill Rutgers, Faissal Nassiri

Data description & Methodology

Sample and variables

• The data used in the analysis was retrieved from the Orbis Europe database
• The data was collected over a nine-year period from 2013 to 2021
• The sample was constructed by starting with 2534 observations of firms and then removing observations that
were blank, duplicated, or had missing data
• The sample of firms that was used in the analysis consists of 1037 corporate, banking, and financial
organizations in Poland
Variables description
Variables Definition

Book leverage By dividing the book value of long-term debt plus

current liabilities by the book value of assets

Ownership concentration Is calculated as percentage shares of the 5 largest

shareholders
Return on Asset (ROA %) Using net income to measure the profitability

Total Assets Firm size

Long-term Debt Debts a company owes third-party creditors that are

payable beyond 12 months
Fixed Assets Long-lived assets or property
Methodology
■ The model is specified as:
Leverage = β0 + β1Ownership + β2TA + β3FA + β4LTD + β5ROA + ε

• Leverage: outcome variable, representing the level of leverage of the firm.

• Ownership: independent variable of interest, representing the level of ownership concentration.
• Total Assets (TA), Fixed Assets (FA), Long-term Debt (LTD) and Return on Assets (ROA): control variables,
included to control for other factors that may influence leverage.
• β0, β1, β2, β3, β4, β5: regression coefficients, representing the effect of each independent variable on the
outcome variables.

• ε: error term, representing the variation in the outcome variable that is not explained by the independent
variables
Results
Descriptive Statistic

• The sample firms have relatively small size,

with a maximum of 15 million in total assets
and an average (mean) of 0.226 million
• The sample do not appear to have a large
amount of debt, as the average (mean) long-
term debt is 0.027 million.

• The average leverage ratio, which is the amount of debt scaled by book value of a firm's assets, is quite high at
43%
• The median value for ROA is 4.6%, indicating that half of the firms in the sample are generating a return of
4.6% or higher on their assets
Regression Results
• The F-statistic (22.05) and the low p-value (0.0000) indicate that the
model as a whole is significant in explaining the variation in
Leverage

• A large t-statistic (|t| > 2) and a low p-value (< 0.05) suggest that the
variable has a significant effect on the dependent variable

• The R-squared value of 0.0966 and the adjusted R-squared value of

0.0922 indicate that the model explains about 9.6% and 9.2% of the
variation in Leverage, respectively

• The Root MSE of 0.23236 indicates the average difference between

the predicted values of Leverage and the actual values of Leverage
Conclusion

• These results suggest that ownership concentration has a weak and insignificant effect on
leverage, while total assets (TA), fixed assets (FA), long-term debt (LTD), and return on assets
(ROA) have significant positive or negative effect on leverage

• The variables Ownership, TA, FA, LTD and ROA are related to Leverage but the effect is not very
high, this could be influenced by other unmeasured factors that are affecting the relationship