ساختار مالکیت و اهرم بدهی: آزمون تجربی یک فرضیه تجارت کردن در شرکت های فرانسوی

Debt may help to manage type II corporate agency conflicts because it is easier for controlling shareholders to modify the leverage ratio than to modify their share of capital. A sample of 112 firms listed on the French stock market over the period 1998–2009 is empirically tested. It supports an inverted U-shape relationship between shareholders’ ownership and leverage. At low levels of ownership, controlling shareholders use more debt in order to inflate their stake in capital and to resist unfriendly takeovers attempts. When ownership reaches a certain point, controlling shareholders’ objectives further converge with those of outside shareholders. Moreover, financial distress will prompt controlling shareholders to reduce the firm's leverage ratio. Empirically, it is shown that the inflection point where the sign of the relationship between ownership and debt changes is around 40%. Debts may help in curbing private appropriation and appears also as a governance variable.

Recent empirical studies in corporate governance show the prevalence of firms with a dominant shareholder (La Porta et al., 1997, La Porta et al., 1998, La Porta et al., 1999, Claessens et al., 2000, Faccio et al., 2002 and Paligorova and Xu, 2009). The fundamental agency problem in firms with a dominant shareholder is between controlling shareholders and outside investors. This situation can potentially impact a firm's financing decisions, particularly choices regarding leverage. The capital structure literature addresses the relationship between ownership structure and debt levels for firms with diffused ownership.1 The results of these studies are mixed to some extent. Some studies suggest that debt is positively related to managers’ equity ownership (Leland and Pyle, 1977, Stulz, 1988, Harris and Raviv, 1988a, Harris and Raviv, 1988b and Berger et al., 1997), while other empirical studies argue for a negative relationship between managerial ownership and debt levels (Friend and Lang, 1988). Another line of research investigates how the separation of cash flow rights and control rights affects capital structure. Namely, it explores the impact of the outside shareholders’ expropriation risk on debt levels. Here, debt is seen as an expropriation device similar to control enhancement mechanisms. Our motivation is different; we investigate the relationship between controlling shareholders’ ownership and corporate debt levels. Here also the extent literature shows mixed results. Kim and Sorensen (1986), and Agrawal and Mandelker (1987) for American firms; Friedman et al. (2003) for Asian firms; Boubaker (2007) for French firms; and Holmen and Hogfeldt (2004) for Swedish firms all find evidence of a positive relationship between debt and control. Considering U.S. firms, Nielsen (2006) empirically documents a trade-off between a levered financial structure and a weak shareholding. These results suggest that debt will help in expropriation because it gives more power on economic resources. However, the conclusions are not unanimously univocal. Faccio et al. (2003) moderate the former idea. In the United States, debt seems to play an effective, disciplinary role in governance. In Europe, the companies at the bottom of a pyramid, who are seen as more vulnerable, are not particularly indebted. On the other hand, in Asia, the situation is different, with strong pressure on the firms in the pyramid. However, excessive debt leverage exposes the firm to failure, a situation where both public and private earnings for the control group are lost. Holderness et al. (1999) find no relationship and show that managerial stock ownership does not increase with debt leverage. Grullon and Kanatas (2001) for American firms or Brailsford et al. (2002) for Australian firms conclude in favor of a nonlinear complex relation between control and debt, positive at the beginning but turning negative at a certain point of control. For the latter, the inside shareholders will try to avoid a loss of control linked to a risk of financial distress, so they will limit the debt ratio of the controlled firm. Ellul (2008) confirms such a nonlinear relationship in a large sample of family firms over many countries. The category of family firms is a subset of controlled firms with specific features. Many empirical studies underline the importance of control incentives (Anderson et al., 2003 and Doukas et al., 2010). Family firms prefer debt financing as a non-dilutive security. This paper proposes an empirical study of a self-regulated relationship between debt levels and controlling shareholders’ capital ownership. Our hypothesis is that this relationship is non-linear. Capital structure decisions depend on the trade-off between the non-dilution entrenchment needs of controlling shareholders and their goal of reducing firm risk. Thus, the relation between controlling shareholders’ ownership and the firm's debt levels may be complex and may have an inverted-U shape. We use a sample of firms listed in the French stock market from the SBF 250 index over the period 1998–2009 in order to explore this relationship. The French context provides an especially good platform to conduct our research for several reasons. First, as documented by La Porta et al. (1999), the corporate governance system in France is characterized by a high concentration of ownership, family-controlled firms, the presence of family members in management, the relative lack of good protection of outside shareholders, and an inefficient law enforcement system. French firms rely more heavily on bank financing and their internal funding is decreasing. Domestic institutional environment is seen as important to explain the international differences in financing decision (Alves and Ferreira, 2011 and Cheng and Shiu, 2007). By considering only one country we neutralize this effect. Our results show that controlling shareholders’ ownership affects a firm's debt level in different ways and support the hypothesis of a trade-off relationship. In particular, we evidence to an inverted U-shaped relationship between the ownership stake of the controlling shareholders and debt levels. Thus, debt first increases (non-dilution entrenchment effect) and then decreases (risk reduction and incentive effect) with the cash flow rights of the controlling shareholders, since the structure of incentives changes as their holding increases. The non-linear relationship confirms that a firm's financing mix depends not only on firm-specific factors but also on the cash-flow rights of the controlling shareholders. We are in line with Ellul's (2008) results in a recent similar study, although it was limited to family firms. In a study related to French firms, Boubaker (2007) finds a similar non-linear relationship between excess control rights and debt levels. Unlike Boubaker's (2007) work, our paper examines an alternative aspect of ownership structure, namely the dominant shareholders’ ownership stake and its impact on the firm's debt ratio. Our paper is also different from recent studies that investigate the impact of a pyramid ownership structure on a firm's capital structure (Paligorova and Xu, 2009, Ellul, 2008, King and Santor, 2008, Manos et al., 2007, Bianco and Nicodano, 2006 and Faccio and Lang, 2002). These studies show that debt facilitates the expropriation of outside shareholders by controlling shareholders who control firms through pyramids. However, in this article, we only consider the dominant shareholder ownership of cash flow rights and not the separation between ownership and control, and we show that more cash flow rights in the hands of the largest shareholder lead to lower leverage. Finally, our paper complements recent studies on the endogeneity of ownership structure and addresses the endogeneity problem between controlling shareholders’ ownership and firm debt levels. From a methodological point of view only few articles implement a simultaneous equation system to take into account the reverse causality problem between controlling ownership and leverage (Bhattacharya and Graham, 2009 and Seifert et al., 2005). In particular, the issue is whether dominant shareholder ownership leads to a low debt level, or whether the limited use of debt prompts controlling shareholders to maintain their holdings. Thus, debt and large shareholder ownership can be seen either as substitute or complementary mechanisms. Our empirical results show also an inverse causal relationship from debt to dominant shareholder ownership, which suggests that debt, may serve as a substitute for capital ownership by the controlling shareholders. In a context of dominant control ownership, we show that the ownership stake is of utmost importance and this decision should interact with leverage. The remainder of this paper is organized as follows. Section 2 reviews the related literature and presents our hypotheses. Section 3 describes research design, sample and data. Section 4 presents the empirical results on French firm data. Section 5 addresses the endogeneity problem and check robustness.

The relationship between ownership structure and debt policy is complex. We show that distinguishing between controlling minority shareholders and controlling majority shareholders is crucial to understand the financing decisions of controlled firms. The French context provides an especially good platform to study the impact of controlling shareholders ownership on firm leverage as ownership concentration system is prevalent in France. The French model of controlling ownership develops mainly through pyramids, whereas this device is insignificant in United States (La Porta et al., 1999). The French context is also different from both the Swedish and Canadian environment, where dual class shares are mainly used as a mean to gain control rights in excess of cash flow rights (La Porta et al., 1999). As a consequence, the conflict of interest between controlling shareholders and outside shareholders seems more severe in France. Cross-country study on capital structure of firms with controlling shareholders may not give definitive conclusions compared to a one-country study. Firms within a given country face the same institutional context. This is why we focus on a single country test and use a French firm sample. We highlight a non-linear, inverted U-shaped relationship between the level of controlling shareholders’ ownership and firm leverage. Controlling shareholders’ ownership affects indebtedness in different ways. At low levels of controlling shareholders’ ownership, the entrenchment effect dominates and results in a positive relation between controlling shareholders’ ownership and leverage. This suggests that controlling shareholders holding a small fraction of a firm's equity will use more debt to inflate their power and protect themselves. When controlling shareholders’ ownership reaches a certain point, controlling shareholders’ objectives further converge with those of outside shareholders. Thus, the fear of financial distress will prompt controlling shareholders to lower indebtedness. Because of local context differences and prevalence of different governance devices, we can expect that similar relationships may exist in other country, but at different level of equilibrium. Our paper also addresses the endogeneity problem of ownership structure and firm debt levels. We show an inverse causal relation from debt to controlling shareholders’ ownership which suggests that debt may serve as substitute mechanism for capital ownership by the controlling shareholders. Our findings are similar to those reported by Ellul (2008) and to the non-linear relationship found by Agca and Mansi (2008). Some questions remain unsolved. We focus mainly on the agency conflict between the controlling shareholder and outside investors. The bankers and other creditors are considered to be passive in our setting. The existence of private benefits is a key point in the agency conflicts among shareholders. Private benefits are part of the problem as specific costs are supported by the controlling shareholder to tunnel cash-flow or to expropriate value. These costs should be put into balance with expected private benefits. Their estimation is uneasy and appears at specific period such as transfer of control (Dyck and Zingales, 2002). We need to investigate how the size of private benefits will condition the tradeoff relationship between the ownership stake and the debt leverage ratio of the controlled firm. This could open the way to future analysis.