On the Relationship between Ownership-Control Structure and Debt Financing: New Evidence from France

34 Pages Posted: 30 Jul 2007

See all articles by Sabri Boubaker

Sabri Boubaker

University Paris-Est Créteil (UPEC) - Institut de Recherche en Gestion

Multiple version iconThere are 2 versions of this paper

Date Written: August 2005

Abstract

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.

Keywords: G32

JEL Classification: Ownership structure, Corporate governance

Suggested Citation

Boubaker, Sabri, On the Relationship between Ownership-Control Structure and Debt Financing: New Evidence from France (August 2005). Available at SSRN: https://ssrn.com/abstract=1003361 or http://dx.doi.org/10.2139/ssrn.1003361

Sabri Boubaker (Contact Author)

University Paris-Est Créteil (UPEC) - Institut de Recherche en Gestion ( email )

61 Avenue du General de Gaulle
94010 Creteil
France

HOME PAGE: http://www.irg.u-pec.fr/enseignant.php?num=58

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