On the Relationship between Ownership-Control Structure and Debt Financing: New Evidence from France
Champagne School of Management (Groupe Esc Troyes); Institut de Recherche en Gestion (Université Paris Est Créteil )
Journal of Corporate Ownership and Control, Vol. 5, No. 1, pp. 139-154, 2007
The paper deals with external debt financing in controlling minority structures (CMSs), a very pervasive corporate organizational structure in France outside CAC 40 firms. Since large controlling shareholders in such firms maintain grip on control while owning an incommensurate small fraction of ownership rights, we are in a situation where their interests depart from that of the minority shareholders. Using a sample of 377 French firms, we show that firms featuring a substantial likelihood of expropriation (higher discrepancy between cash flow rights and control rights or group-affiliated), present lower leverage ratios than others due to debt supply restrictions. Contrariwise, the presence of second large controlling shareholder is perceived by external finance suppliers as a pledge against expropriation. Therefore, such firms exhibit high debt levels.
JEL Classification: Ownership structure, Corporate governanceAccepted Paper Series
Date posted: July 30, 2007 ; Last revised: March 12, 2008
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