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Group Affiliation and Ownership Concentration as Determinants of Capital Structure Decisions: Contextualizing the Facts for an Emerging Economy

ISI: Group Affiliation and Ownership Concentration as Determinants of Capital Structure Decisions: Contextualizing the Facts for an Emerging Economy

PAOLO SAONA H., MAURICIO JARA B., PABLO SAN MARTIN.

2017 - Forthcoming - Emerging Markets Finance and Trade

Abstract

This study considers the firm’s affiliation with business groups and theo wnership structure as determinants of leverage decisions in Chilean firms. The major findings show that group-affiliated firms take advantage of internal capital markets and transactions with related parties (e.g. low transference price or loans at competitive interest rates) which reduces the demand for external debt. Majority shareholders in affiliated firms behave as controllers of managers, on the one hand, and avoid the supervisory role of debt, on the other hand. In stand-alone firms, supervision led by majority shareholders is complemented by the monitoring role of debt through higher levels of leverage. We conclude that further developments in capital structure theories adjusted to the particularities of the different institutional contexts are needed. 

Keywords

Capital structure, business groups, ownership concentration, panel data, Chilean firms.

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