Blockholder Leverage and Payout Policy: Evidence from French Holding Companies

40 Pages Posted: 27 May 2020

See all articles by Sereeparp Anantavrasilp

Sereeparp Anantavrasilp

Rotterdam School of Management (RSM)

Abe de Jong

Rotterdam School of Management, Erasmus University; Monash University; European Corporate Governance Institute (ECGI)

Douglas V. DeJong

University of Iowa - Tippie College of Business

Ulrich Hege

Toulouse School of Economics; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: January/February 2020

Abstract

This paper focuses on dominant owners’ use of leverage to finance their blockholdings and its relationship to dividend policy. We postulate that blockholder leverage may impact payout policy, in particular when earnings are hit by a negative shock. We use panel data for France where blockholders have tax incentives to structure their leverage in pyramidal holding companies and study the effect of the financial crisis in 2008/2009. We find no difference in payout policy and financial behavior during the 1999 to 2008 period between firms with levered owners and other firms. However, in the years 2009 to 2011 following the crisis, dividend payouts increase in proportion to pyramidal debt of dominant owners. We inspect pyramidal entities individually and find that on average only 60% of dividends are passed through to the ultimate owners, with the rest predominantly used to meet debt service obligations of the pyramidal entities.

Keywords: blockholder private leverage, blockholders, concentrated ownership, financial crisis, insider pledging, leverage, margin loans, payout policy, pyramids

JEL Classification: G32, G34, G35

Suggested Citation

Anantavrasilp, Sereeparp and de Jong, Abe and DeJong, Douglas V. and Hege, Ulrich, Blockholder Leverage and Payout Policy: Evidence from French Holding Companies (January/February 2020). Journal of Business Finance & Accounting, Vol. 47, Issue 1-2, pp. 253-292, 2020, Available at SSRN: https://ssrn.com/abstract=3605621 or http://dx.doi.org/10.1111/jbfa.12415

Sereeparp Anantavrasilp (Contact Author)

Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Abe De Jong

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-25
Rotterdam, 3000 DR
Netherlands
+31 10 408 1022 (Phone)

HOME PAGE: http://https://www.rsm.nl/people/abe-de-jong/

Monash University ( email )

900 Dandenong Rd
Room H3-56
Caulfield East, Victoria 3145
Australia

HOME PAGE: http://https://research.monash.edu/en/persons/abe-de-jong

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Douglas V. DeJong

University of Iowa - Tippie College of Business ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0919 (Phone)

Ulrich Hege

Toulouse School of Economics ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France
+33 5 61 12 86 01 (Phone)

HOME PAGE: http://https://www.tse-fr.eu/people/ulrich-hege

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

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