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

2018. Emerging Markets Finance and Trade. Volume 54, 2018 - Issue 14. Pp 3312 - 3329

Paolo Saona H, Pablo San Martin M, Mauricio Jara B

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. 

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

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