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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, Journal of Multinational Financial Management, 22, 4, p. 111–130. http://dx.doi.org/10.1016/j.mulfin.2012.06.001

Type
Article accepté pour publication ou publié
External document link
http://halshs.archives-ouvertes.fr/halshs-00674250
Date
2012-10
Journal name
Journal of Multinational Financial Management
Volume
22
Number
4
Publisher
Elsevier
Pages
111–130
Publication identifier
http://dx.doi.org/10.1016/j.mulfin.2012.06.001
Metadata
Show full item record
Author(s)
de La Bruslerie, Hubert
Latrous, Imen
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 / Keywords
Corporate governance; Private benefits; Controlling shareholders; Debt leverage
JEL
G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
G3 - Corporate Finance and Governance

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