Do shareholder protection and creditor rights have distinct effects on the association between debt maturity and ownership structure?

Abstract

This study examines the effects of the firm's ownership concentration and its institutional environment on corporate debt maturity choices. As ownership concentration and debt maturity are alternative governance mechanisms, we theorize and investigate whether their association is influenced by country‐level governance factors that enhance outside monitoring by minority shareholders and debtholders. Our investigation is based on a dataset of 50,599 firm‐year observations from 38 countries. We use a propensity‐score matching approach and find that the effect of ownership concentration on debt maturity is conditional to country‐level governance attributes. Ownership concentration has a negative effect on debt maturity in countries where both shareholder protection and creditor rights are weak. Ownership concentration, however, tends to lengthen debt maturity as protection increases, and this positive effect on the length of debt maturity is stronger in countries enhancing protection towards debtholders (instead of shareholders). We also explore other characteristics of ownership structure, such as the identity and presence of controlling shareholders. These results corroborate the view that entrenched shareholders may use debt maturity opportunistically. Our study provides new insights into the interplay between firm‐ and country‐level governance mechanisms and a deeper understanding of cross‐country differences in the association between ownership structure and debt financing.

ESG Outcasts: Study of the ESG Performance of Sin Stocks

“…The paired control group needed to present similarity for the four attributes explained above that are as close as possible to that of the sin stocks: the firm's country, market capitalization (size), financial leverage and average return on assets over the past five years. This approach is similar to the pairing methodology used in previous literature [28,29].…”

Family ownership and capital structure: evidence from ASEAN countries

“…The related literature has also provided evidence that the relationship between family ownership and capital structure varies from country to country (Ampenberger et al, 2013;Driffield et al, 2007;Haider et al, 2021), mostly due to the different levels of investor protection (Hansen and Block, 2020;Martins et al, 2020). For instance, in countries with low minority investor protection, family shareholders can expropriate minority shareholders' wealth to pursue their own interests (Croci et al, 2011), which renders costs of external equity more expensive in comparison with non-family peers, leading to higher leverage levels (Gottardo and Maria Moisello, 2014).…”

“…For instance, in countries with low minority investor protection, family shareholders can expropriate minority shareholders' wealth to pursue their own interests (Croci et al, 2011), which renders costs of external equity more expensive in comparison with non-family peers, leading to higher leverage levels (Gottardo and Maria Moisello, 2014). In addition, the increasing Legal Rights Index implies that creditors have more rights in monitoring a company and have more bargaining power in liquidation (Martins et al, 2020). Therefore, improving creditor protection may lead family firms to avoid debt financing, given their control consideration (Ampenberger et al, 2013).…”

The value of shareholder rights in family firms: Global evidence from a death in the family

“…The law and finance literature investigates how the law affects decision-making in firms with widely dispersed shareholders and the valuation of these firms (Allen et al, 2005;la Porta et al, 1997la Porta et al, , 1998Peng & Jiang, 2010). These two strands of literature are related: One of the assumptions of the law and finance literature is that protection of shareholder rights and internal corporate governance mechanisms mutually supplement each other and make up the governance environment to limit agency costs (Aguilera et al, 2015;Bell et al, 2014;Chrisman et al, 2018;Martins et al, 2017Martins et al, , 2020Peng et al, 2018;Schiehll & Martins, 2016;Walsh & Seward, 1990). We contribute to the discussion by focusing on the endogenous relationship between internal (organizational form and ownership concentration) and external governance mechanisms (shareholder rights) in family firms.…”

“…Aguilera et al (2015),Bell et al (2014),Chrisman et al (2018),Martins et al (2017),Martins et al (2020),Peng et al (2018), andSchiehll and Martins (2016) discuss the importance of internal and external governance mechanisms working together to limit agency costs. The value that family firms generate depends on the internal and external corporate governance controls that foster the development of firm-specific human capital of family members while constraining their self-serving actions.…”