The Effects of Ownership Structure and Intragroup Loans on Leverage: Evidence from Family Firms in Chile. Issue 11 (2nd September 2018)

• Record Type: Journal Article
• Authors: Jara, Mauricio; Pinto-Gutiérrez, Cristian; Núñez, Paula
• Is Part Of: Emerging markets finance & trade. Volume 54:Issue 11(2018)
• Page Start: 2614
• Page End: 2629
• Publication Date: 2018-09-02
• Subjects: business groups -- capital structure -- family firms -- internal capital markets -- ownership structure -- pyramidal structure; G32; Balkan Peninsula -- Commerce -- Periodicals; Balkan Peninsula -- Foreign economic relations -- Periodicals; Europe, Central -- Commerce -- Periodicals; Europe, Central -- Foreign economic relations -- Periodicals; Europe, Eastern -- Commerce -- Periodicals; Europe, Eastern -- Foreign economic relations -- Periodicals; Turkey -- Commerce -- Periodicals; Turkey -- Foreign economic relations -- Periodicals; Asia -- Commerce -- Periodicals; Asia -- Foreign economic relations -- Periodicals; Eurasia -- Commerce -- Periodicals; Eurasia -- Foreign economic relations -- Periodicals; 382.05
• DOI: 10.1080/1540496X.2017.1369401
• Languages: English
• ISSNs: 1540-496X

Abstract

ABSTRACT: This article examines the effects of family control and pyramidal ownership on firms' capital structure decisions. After studying a sample of listed family and nonfamily firms in Chile, we find that families take a conservative approach to debt and financial risk exposure. We test the hypothesis that family firms restrict the use of debt in order to avoid the monitoring role of creditors, which could limit their enjoyment of the private benefits of control. In keeping with this hypothesis, we find a U-shaped relationship between leverage and the degree of pyramidal ownership that is more pronounced among family firms than nonfamily firms. We do not find any evidence that is consistent with the hypothesis that family-controlled firms have low leverage ratios due to their access to internal capital markets. In fact, conversely, we find that listed family firms provide more loans to related companies than comparable nonfamily firms.