Interaction Effects between Ownership Concentration and Leverage on Firm Performance

This paper examines the relationship between ownership structure and capital structure on firm performance. Both direct and moderating effects are examined. In this paper, we posit, as a primary relationship, a significant association between ownership concentration and firm performance and then examine whether the level of leverage moderates this relationship. Using a sample of 1827 observations listed on the Korean Stock Exchange (KSE) from 2010 to 2012, the paper finds that ownership concentration has a significant negative effect on firm performance. By using hierarchical regression analysis we further find that the level of leverage has a significant interaction effect on the relationship between ownership concentration and firm performance. Firms with a low level of ownership concentration and lower leverage have better firm performance than firms with a high level of ownership concentration and higher leverage. We conclude that the negative relationship between ownership concentration and firm performance is weaker for firms with higher leverage compared to the firms with lower leverage.