Complex Ownership and Capital Structure

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

Teodora Paligorova

Bank of Canada

Zhaoxia Xu

New York University

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

Bank of Canada ( email )

Ottawa, Ontario K1A 0G5
Canada

Zhaoxia Xu (Contact Author)

New York University ( email )

New York, NY 11201
United States

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