Voting stake of the largest shareholder, ownership concentration and leverage

Purpose - This paper aims to investigate the impact of the largest shareholder's voting stake on the firm's capital structure decision. Design/methodology/approach - To empirically analyze the influence of the voting stake on leverage, a large sample of 814 exchange-listed firms is applied. The baseline regression analysis is complemented by several robustness tests and a difference-in-difference regression analysis to mitigate endogeneity concerns. Findings - The authors find a negative relationship between the voting stake of the largest shareholder and leverage, consistent with the notion that large, undiversified shareholders have the incentive to reduce risk. Additionally, results reveal that family control has a positive moderating effect, indicating that the negative relationship is less pronounced for family controlled firms. Research limitations/implications - The authors contribute to the research by suggesting ownership concentration as another determinant of capital structure. Further, the authors add to the literature by showing how the association between ownership concentration and leverage is moderated by family control and that the identity of the largest shareholder is of great importance. Practical implications - The paper provides important insights to the current debate on the proposal of the European Commission to reintroduce shares with multiple votes as part of the Listing Act. The authors expect the regulation to exacerbate the concentration of voting rights, which results in lower leverage and thus limits corporate growth. Originality/value - The authors differentiate from previous studies by focusing the largest shareholders' voting stake, instead of using the ownership stake, to assess the impact of ownership concentration on leverage.