This paper studies the ownership connection between two units that share a common controlling entity. Our results generate diverse organizations, including the horizontal groups of US family firms and the hierarchical ownership of both multinationals and European groups. The driver of ownership is the optimal capital structure associated with the tax-bankruptcy trade-off. We also examine optimal mutations in response to dividend taxes, to caps on interest deductions and to "no bailout" rules.Keywords: ownership structure; capital structure; dividend taxes; Thin Capitalization; groups; securitization; private equity.
AbstractThis paper investigates the ownership connection between two firms that share a common controlling stockholder. Our model generates diverse organizations, including horizontal groups of United States family firms and the hierarchical ownership of both multinationals and European groups. The driver of ownership is the optimal capital structure associated with the tax bankruptcy trade-o↵. We also examine optimal ownership mutations, in response to dividend taxes, to caps on interest deductions and "no bailout" rules.