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On the Relationship between Ownership-Control Structure and Debt Financing: New Evidence from France

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  • Sabri Boubaker

    (Groupe ESC Troyes en Champagne, IRG - Institut de Recherche en Gestion - UPEM - Université Paris-Est Marne-la-Vallée - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12)

Abstract

The paper deals with external debt financing in controlling minority structures (CMSs), a very pervasive corporate organizational structure in France outside CAC 40 firms. Since large controlling shareholders in such firms maintain grip on control while owning an incommensurate small fraction of ownership rights, we are in a situation where their interests depart from that of the minority shareholders. Using a sample of 377 French firms, we show that firms featuring a substantial likelihood of expropriation (higher discrepancy between cash flow rights and control rights or group-affiliated), present lower leverage ratios than others due to debt supply restrictions. Contrariwise, the presence of second large controlling shareholder is perceived by external finance suppliers as a pledge against expropriation. Therefore, such firms exhibit high debt levels.

Suggested Citation

  • Sabri Boubaker, 2007. "On the Relationship between Ownership-Control Structure and Debt Financing: New Evidence from France," Post-Print hal-01155601, HAL.
    • Handle: RePEc:hal:journl:hal-01155601
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    Citations

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    Cited by:

    1. Hani El-Chaarani, 2014. "The Impact of Financial Structure on the Performance of European Listed Firms," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 103-124.
    2. Rossi, Fabrizio & Barth, James R. & Cebula, Richard J., 2018. "Do shareholder coalitions affect agency costs? Evidence from Italian-listed companies," Research in International Business and Finance, Elsevier, vol. 46(C), pages 181-200.
    3. Su, Kun, 2014. "The inner structure of pyramid and capital structure: Evidence from China," Economics Discussion Papers 2014-5, Kiel Institute for the World Economy (IfW Kiel).
    4. 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, Elsevier, vol. 22(4), pages 111-130.
    5. Toan Luu Duc Huynh & Tran Bao Kieu Cong, 2017. "Bank Financing and Corporate Governance: Empirical Evidence from Vietnam," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(11), pages 1055-1074, November.
    6. Hani El-Chaarani, 2015. "The Impact of Financial and Legal Structures on the Performance of European Listed Firms," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(2), pages 39-52.

    More about this item

    Keywords

    Ownership structure; Corporate governance;

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