گروه های هرمی و بدهی

This paper suggests that debt should be raised by subsidiaries in order to exploit the limited liability of the holding company. However, when this behavior increases the cost of funds, the holding might prefer to raise debt to a point where it would also default when subsidiaries are insolvent. After accounting for standard controls, we find that holding companies in Italian pyramids have higher leverage than subsidiaries and that the cash-flow share of the entrepreneur in the subsidiary does not play a significant role. These findings are consistent with the implications of our model of group capital structure.

Business groups are a common corporate organizational form in several continental European and developing countries.2 Frequently, they have a pyramidal structure with a holding company at the top and various layers of subsidiaries below. The entrepreneur typically has the majority of voting rights in every company, either directly in the holding or indirectly in the subsidiaries. A major source of finance for groups is debt, yet no model of pyramids explains how debt is chosen and allocated across group-affiliated companies. This paper investigates theoretically group capital structure and its welfare implications, and empirically how debt is allocated within Italian groups. Traditional capital structure theories refer to a stand-alone company. However, the capital structure of group-affiliated companies is richer since they have access to both the internal (within the group) and the external capital market. This structure might be affected, among other factors, by the law: in major jurisdictions the holding has indeed no obligation for the insolvency of its operating subsidiaries, unless it is proved that it was directly responsible, i.e., the holding enjoys limited liability.3 Our model builds specifically on this insight—previously ignored in the corporate finance or business group literature—suggesting that subsidiaries should raise a large fraction of group debt, since limited liability insures the holding company from costly bankruptcy in adverse contingencies. However, if lenders cannot monitor the risk of projects, the entrepreneur may allocate riskier projects in the operating unit. Anticipating this, lenders might charge higher interest rates. It may therefore pay the entrepreneur to commit not to increase excessively the risk taken by subsidiaries by raising the holding company's debt to such a level that it would default together with the operating unit when the latter is insolvent. Most of the literature on pyramidal groups emphasizes the agency problem between the group controlling agent and subsidiaries’ minority shareholders, associated with the low share of cash flow that the entrepreneur is entitled to in operating subsidiaries and hence with the opportunities for their expropriation (Bebchuk, 1999; Bebchuk et al., 2000). While these theories rationalize why stock markets are underdeveloped in countries where pyramidal groups are common, they cannot explain why banking sectors are well developed in the same countries. In other words, they explain the costs of pyramidal structures but not their potential advantages. By focusing on the relationship with lenders, we take a first step in this last direction.4 Our empirical analysis concerns group-affiliated Italian companies, for which unconsolidated accounts are available. Thanks to these data—usually not available through major commercial data providers—we are able to distinguish between external debt, obtained from outside-the-group financiers only, and total loans obtained from other group-affiliated units. Hence our empirical analysis focuses on each company's external debt.5 This is related to the entrepreneur's cash-flow share and to the type—holding or operating subsidiary—of company, while controlling for firm specific factors affecting its comparative advantage in raising debt. Our results are consistent with the predictions of the model, as we find that holding companies raise a larger portion of external debt over assets while other capital structure theories bear different implications. The paper is organized as follows. The details of the model are presented in Section 2. Section 3 contrasts the implications of previous capital structure theories with those of our model. In Section 4 we present the empirical analysis.

The literature on business groups has so far focused on the potential expropriation of minority shareholders by entrepreneurs in countries characterized by weak investor protection. This paper contributes to understanding pyramids by shifting the focus of the analysis from equity to debt, which is their main source of external funds. It also allows one to clarify the role of the holding company's limited liability, which is a feature of the law governing business groups in major jurisdictions. Our model stresses that limited liability of the holding company may reduce bankruptcy costs by allowing for partial default of unsuccessful operating units. Protecting some units from the failure of other units is welfare improving, and this improvement is increasing in the size of bankruptcy costs. This implication might be tested in a cross-section of countries: pyramidal structures should be more valuable relative to alternative organizational forms, and hence more common, where bankruptcy procedures are costlier. Our empirical analysis sheds light on capital structure in group-affiliated companies. In our sample, holding companies raise a larger portion of external debt over assets and are net lenders to their subsidiaries. Furthermore, the correlation between company's external debt and the entrepreneur's cash-flow share is positive, when statistically significant. This evidence is inconsistent with other theories of capital structure, which imply either larger debt in operating units or the irrelevance of group capital structure. This pattern mirrors instead one equilibrium of our model, where the entrepreneur commits not to increase risk in subsidiaries by levering up the holding company—thus giving up her option of rescuing the holding from the default of operating subsidiaries. Empirical studies of capital structure usually focus on the consolidated balance sheets of listed companies. We extended the analysis to unlisted group-affiliated firms. However, smaller joint-stock companies as well as partnerships are not covered by our data sources. Further research could challenge the robustness of our findings on the basis of larger data sets which may be available in other countries. Information concerning interest rates paid by holding and operating companies may also help to further discriminate among competing hypotheses concerning group capital structure.