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Nonlinear relationship between institutional investors' ownership and capital structure: evidence from Iranian firms

The main objective of this study is to examine how institutional investors and different types of them influence the firms' capital structure. Using a panel data including 240 the main market Iranian firms from 2012 to 2016, the results of this study show that there is a nonlinear relationship between institutional ownership and capital structure. First, we look for a quadratic relationship but we did not find any evidence to support it. Further, we test for a cubic association in the next stage. The results reveal a cubic relationship between institutional ownership and capital structure but this association is different for different types of institutional investors. Pressure-sensitive institutions have positive, negative and again positive influence; while inversely pressure-insensitive institutions have a negative, positive and again negative impact on debt ratio in different levels of their ownership.