Do Network Linkages Affect Financial Leverage? A Group Governance Perspective

Using a unique panel of 315 Taiwanese listed business groups over the period of 2006- 2008, and adopting the related party purchases and sales transactions as the proxy for network linkages, this study tests whether do the network linkages affect financial leverage. The results find that the shareholdings of family members and the divergence between the board seats control and voting rights are negatively correlated with the related party purchases and sales network linkages. For information technology (IT) family firms, the higher the related party sales, the higher is the debt ratio; the higher the related party purchases, the higher is the long-term debt ratio; and the greater the number of related party suppliers, the higher is the short-term debt ratio. The opposite is true for non-information technology (NIT) family firms.