Complex ownership and capital structure

This paper explores pyramidal firms and their motivations for the use of debt financing. We find that pyramids have significantly higher leverage than non-pyramids and that the use of debt in pyramids is associated with the risk of expropriation. We do not find evidence for the control-enhancing, di...

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Bibliographic Details
Published in:Journal of corporate finance (Amsterdam, Netherlands) Netherlands), 2012-09, Vol.18 (4), p.701-716
Main Authors: Paligorova, Teodora, Xu, Zhaoxia
Format: Article
Language:English
Subjects:
Capital structure
Debt financing
Expropriation
Leverage
Multiple shareholders
Pyramid operations
Pyramids
Studies
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Summary:This paper explores pyramidal firms and their motivations for the use of debt financing. We find that pyramids have significantly higher leverage than non-pyramids and that the use of debt in pyramids is associated with the risk of expropriation. We do not find evidence for the control-enhancing, disciplining, tax-reduction, and risk-sharing explanations for the use of debt financing. Our results indicate that the capital structure of pyramids is affected by the expropriation activities of ultimate owners that have excess control rights. ► We find that pyramidal firms have higher leverage than non-pyramidal firms. ► We test several hypotheses regarding the use of debt in pyramidal firms. ► Higher risk of expropriation is associated with more debt in pyramids.
ISSN:0929-1199
1872-6313
DOI:10.1016/j.jcorpfin.2012.05.001