Résumé en anglais

Controlled firms are in a framework where private benefits create a buffer between public earnings and economic profitability. We focus on debt leverage in the type II agency conflict between the controlling shareholder and outside investors. We use a simple discrete model comparing the capital ownership stake of the controlling shareholder with that of the outside investors in a framework without and with debt. The paper highlights that debt is a governance variable, as it can moderate private benefits or, conversely, help diversion. Debt appears in some situations as a disciplinary tool in the conflict between outside and controlling shareholders. It may self-regulate the two parties involved in a control contract. The setting of joint ownership between the controlling shareholder and outside investors depends on the perceived level of private benefits. It has a connection with future earning management. The key terms of agreement between the two parties are the stakes of equity capital as wished by each one and the leverage ratio.