Ownership Structure and Debt Leverage: Empirical Test of a Trade-Off Hypothesis on French Firms
de La Bruslerie, Hubert; Latrous, Imen (2012), Ownership Structure and Debt Leverage: Empirical Test of a Trade-Off Hypothesis on French Firms, 29th International Conference of the French Finance Association, AFFI 2012, 2012-05, Strasbourg, France
TypeCommunication / Conférence
External document linkhttp://dx.doi.org/10.2139/ssrn.2084894
Conference title29th International Conference of the French Finance Association, AFFI 2012
MetadataShow full item record
Abstract (EN)Debt may help to manage type II corporate agency conflicts because it is easier for controlling shareholders to modify the leverage ratio than to modify their share of capital. A sample of 112 firms listed on the French stock market over the period 1998-2009 is empirically tested. It supports an inverted U-shape relationship between shareholders' ownership and leverage. At low levels of ownership, controlling shareholders use more debt in order to inflate their stake in capital and to resist unfriendly takeovers attempts. When ownership reaches a certain point, controlling shareholders' objectives further converge with those of outside shareholders. Moreover, financial distress will prompt controlling shareholders to reduce the firm's leverage ratio. Empirically, it is shown that the inflection point where the sign of the relationship between ownership and debt changes is around 40%. Debts may help in curbing private appropriation and appears also as a governance variable.
Subjects / KeywordsControlling Shareholders; Debt Leverage; Corporate Governance; Private Benefits
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