Complex Ownership and Capital Structure

44 Pages Posted: 18 Mar 2009 Last revised: 4 May 2012

See all articles by Teodora Paligorova

Teodora Paligorova

Board of Governors of the Federal Reserve System

Zhaoxia Xu

UNSW Australia Business School, School of Banking and Finance

Date Written: May 3, 2012

Abstract

This paper explores pyramidal firms and their motivations for the use of debt financing. We find that pyramids have significantly higher leverage than non-pyramids and that the use of debt in pyramids is associated with the risk of expropriation. We do not find evidence for the control-enhancing, disciplining, tax-reduction, and risk-sharing explanations for the use of debt financing. Our results indicate that the capital structure of pyramids is affected by the expropriation activities of ultimate owners that have excess control rights.

Keywords: Capital Structure, Pyramids, Multiple Shareholders

JEL Classification: G31, G32

Suggested Citation

Paligorova, Teodora and Xu, Zhaoxia, Complex Ownership and Capital Structure (May 3, 2012). Journal of Corporate Finance Forthcoming, Available at SSRN: https://ssrn.com/abstract=1362249 or http://dx.doi.org/10.2139/ssrn.1362249

Teodora Paligorova

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Zhaoxia Xu (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

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