Abstract
This paper focuses on dominant owners’ use of leverage to finance their blocks and its relationship to dividend policy. We postulate that the leverage of blockholders leads to higher dividend payouts and lower investments because dividends are needed to service blockholder debt (Debt Service Hypothesis). We use data for France where blockholders have tax incentives to structure their leverage in pyramidal holding companies. We find strong evidence for our hypothesis: dividend payouts increase in proportion to pyramidal debt of dominant owners. We inspect pyramidal entities individually and find that dividends received are explained by debt obligation needs. Companies dominated by levered blockholders invest significantly less. Alternative explanations for payout policy in pyramids, based on investments or cash preferences, cannot explain the dividend pattern.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
