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Corporate ownership structure and the choice between bank debt and public debt

Author Info

  • Lin, Chen
  • Ma, Yue
  • Malatesta, Paul
  • Xuan, Yuhai

Abstract

This article examines the relation between a borrowing firm's ownership structure and its choice of debt source using a novel data set on corporate ownership, control, and debt structures for 9,831 firms in 20 countries from 2001 to 2010. We find that the divergence between the control rights and cash-flow rights of a borrowing firm's largest ultimate owner has a significant negative impact on the firm's reliance on bank debt financing. In addition, we show that the control-ownership divergence affects other aspects of debt structure including debt maturity and security. Our results indicate that firms controlled by large shareholders with excess control rights may choose public debt financing over bank debt as a way of avoiding scrutiny and insulating themselves from bank monitoring.

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Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 109 (2013)
Issue (Month): 2 ()
Pages: 517-534

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Handle: RePEc:eee:jfinec:v:109:y:2013:i:2:p:517-534
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

Keywords: Ownership structure; Excess control rights; Bank Debt; Public Debt;

Find related papers by JEL classification:

  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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Cited by:

  1. Sandra Correia & Paula Brito & Elísio Brandão, 2014. "Corporate Debt Maturity - An international comparison of firm debt maturity choices," FEP Working Papers 544, Universidade do Porto, Faculdade de Economia do Porto.
  2. Byun, Hae-Young & Choi, Sunhwa & Hwang, Lee-Seok & Kim, Robert G., 2013. "Business group affiliation, ownership structure, and the cost of debt," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 311-331.
  3. Davydov, Denis & Nikkinen, Jussi & Vähämaa, Sami, 2014. "Does the decision to issue public debt affect firm valuation? Russian evidence," Emerging Markets Review, Elsevier, vol. 20(C), pages 136-151.
  4. Tanaka, Takanori, 2014. "Corporate governance and the cost of public debt financing: Evidence from Japan," Journal of the Japanese and International Economies, Elsevier, vol. 34(C), pages 315-335.

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