The Impact of Large Shareholder and Managerial Self-Interest on Corporate Capital Structure: An Empirical Study of Swedish Firms

Abstract:     
By using direct estimates of shareholder wealth and by distinguishing voting power from equity ownership, we find similar but more rigorous evidence than previous studies, that as controlling shareholders' non-diversifiable investments in firms increase firm debt levels decrease and that large outside shareholders pressure managements into setting debt levels more in line with other shareholders' interests. However, we find a more consistent positive relationship between the fraction of equity held by large shareholders and firm debt levels. Furthermore, we find evidence that firm debt levels are affected by agency problems not only between institutions who own shares in firms and the firm's managers, but also between the owners and managers of the institutions.

JEL Classification: G32

working papers series