Blockholder Leverage and Payout Policy: Evidence from French Holding Companies

Sereeparp Anantavrasilp, Abe de Jong, Douglas V. Dejong and Ulrich Hege
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Sereeparp Anantavrasilp: Erasmus University Rotterdam
Abe de Jong: Monash University [Melbourne]
Douglas V. Dejong: University of Iowa [Iowa City]

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Abstract: 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.

Keywords: Blockholder private leverage; Blockholders; Concentrated ownership; Financial crisis; Insider pledging; Leverage; Margin loans; Payout policy; Pyramids (search for similar items in EconPapers)
Date: 2020-02
Note: View the original document on HAL open archive server: https://hal.science/hal-03048905v1
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Citations: View citations in EconPapers (6)

Published in Journal of Business Finance and Accounting, 2020, 47 (1-2), pp.253-292. ⟨10.1111/jbfa.12415⟩

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Related works:
Journal Article: Blockholder leverage and payout policy: Evidence from French holding companies (2020)
Working Paper: Blockholder Leverage and Payout Policy: Evidence from French Holding Companies (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03048905

DOI: 10.1111/jbfa.12415

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