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Blockholder leverage and payout policy: Evidence from French holding companies
Author(s) -
Anantavrasilp Sereeparp,
Jong Abe,
DeJong Douglas V.,
Hege Ulrich
Publication year - 2019
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12415
Subject(s) - leverage (statistics) , capital structure , dividend , monetary economics , incentive , business , dividend payout ratio , debt , dividend policy , shock (circulatory) , earnings , financial crisis , panel data , financial system , finance , economics , macroeconomics , econometrics , medicine , machine learning , computer science , microeconomics
This paper focuses on dominant owners’ use of leverage to finance their blockholdings and its relationship to dividend policy. We postulate that blockholder leverage may impact payout policy, in particular when earnings are hit by a negative shock. We use panel data for France where blockholders have tax incentives to structure their leverage in pyramidal holding companies and study the effect of the financial crisis in 2008/2009. We find no difference in payout policy and financial behavior during the 1999 to 2008 period between firms with levered owners and other firms. However, in the years 2009 to 2011 following the crisis, dividend payouts increase in proportion to pyramidal debt of dominant owners. We inspect pyramidal entities individually and find that on average only 60% of dividends are passed through to the ultimate owners, with the rest predominantly used to meet debt service obligations of the pyramidal entities.