On the relationship between ownership-control structure and debt financing: new evidence from France

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 only a 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.