On the relationship between ownership-control structure and debt financing: new evidence from France
Open Access
- 1 January 2007
- journal article
- Published by Virtus Interpress in Corporate Ownership and Control
- Vol. 5 (1), 139-154
- https://doi.org/10.22495/cocv5i1p12
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 only a 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
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