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Complex Ownership and Capital Structure

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  • Teodora Paligorova
  • Zhaoxia Xu

Abstract

This paper investigates the impact of pyramid ownership structure and multiple controlling shareholders on firm leverage. Pyramids, having at least one controlling shareholder and a subsidiary, rely significantly more on debt financing than non-pyramid firms. Moreover, higher leverage is observed in pyramids where the second controlling shareholders have more voting rights. We also find that the disparity between the voting rights of the first two controlling shareholders is negatively related to firm leverage. Interestingly, the influence of the second controlling shareholder is only present in non-family controlled pyramids. Overall, the results are consistent with the view that controlling shareholders in pyramids use debt to secure their private benefits.

Suggested Citation

  • Teodora Paligorova & Zhaoxia Xu, 2009. "Complex Ownership and Capital Structure," Staff Working Papers 09-12, Bank of Canada.
  • Handle: RePEc:bca:bocawp:09-12
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    Keywords

    Financial markets; International topics;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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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