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Omrane Guedhami (University of South California)

Ownership structure and Debt leverage: Empirical Test on French Firms

Auteurs : DE LA BRUSLERIE Hubert (University Paris 1 Sorbonne) and LATROUS Imen (University of Quebec) Email :

Intervenants : LATROUS Imen (University of Quebec at Chicoutimi)

Rapporteurs : DERRIEN François (HEC Paris)

The appropriation of private benefits by controlling shareholders introduces a conflict
with outside shareholders. Debt is traditionally analyzed as disciplinary in the shareholders-
manager conflict. It is less commonly analyzed in relation to controlling and outside shareholders.
This paper shows that the joint problematics of ownership, private benefits and debt leverage
are linked in a framework of financial governance. At the same time, debt helps to manage
the conflict because it may be easier for the controlling shareholders to modify the leverage
ratio than to modify his share of capital. A model shows that debt appears as a key governance
variable as it can moderate private benefits or, conversely, may help diversion. The entrenchment
effect and the fear for failure may explain the impact of debt. The existence of self-limited
appropriation logics is highlighted as well as the importance of the information policy
adopted by the controlling shareholders. In this paper, we test a possible non-linear relation
between shareholders ownership and leverage. Using a sample of 118 French listed firms over
the period 1998-2002, our results show that controlling shareholders ownership is linked with debt
at different stage. At low levels of ownership, controlling shareholders use more debt in order to
inflate their voting power and resist to unfriendly takeovers attempts. When ownership reaches a
certain point, controlling shareholders’ objectives converge further to those of outside shareholders.
Thus, controlling shareholders have little incentives to use more debt. Moreover, the fear of financial
distress will prompt controlling shareholders to reduce the firm’s leverage ratio.

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Ownership, Control and Market Liquidity

Auteurs : GINGLINGER Edith and HAMON Jacques (University Paris Dauphine) Email :

Intervenants : GINGLINGER Edith (University Paris Dauphine)

Rapporteurs : PERIGNON Christophe (HEC Paris)

We examine how ownership concentration and the separation of ownership and control
affect market liquidity in France. We find that firms with a large insider blockholder
exhibit significantly lower liquidity. Different methods of concentrating control affect
liquidity in different ways. Pyramid structures negatively affect liquidity for all pyramiding
firms. Double voting right shares, a French specific means of control enhancement
rewarding long-term shareholders, lead to increased liquidity for outside investors of
small, familyfirms, by reducing the probability of informed trading.

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The Market for Corporate Directors

Auteurs : LEE Changmin (Indiana University, Bloomington) Email :

Intervenants : LEE Changmin (Indiana University, Bloomington)

Rapporteurs : QUERE Bertrand (Université de Grenoble 2)

This paper develops a matching model in the market for directors to explain
equilibrium board quality. In my model, (1) the boards of directors have the role of
monitoring and advising, (2) the impact of a CEO’s quality increases with the size of
a firm under his control, (3) the CEO and the boards could be either complements
or substitutes, in the production function, and (4) the boards enjoy money value
and reputation value. When the reputation depends on market value of firms, po-
tential directors like to work at firms with talented CEOs if they can enjoy enough
reputational gain on boards owing to talented CEOs. In contrast, when potential
directors want value-added for reputation, they would be at firms with low-ability
CEOs if the CEO and the boards are substitute. My empirical estimates suggest
that talented ongoing CEOs and former CEOs work as outside directors of firms
with high market capitalization and with high sales, though not with high assets.
The quality of boards is higher where CEO pay is higher, but whether they like to
work at firms with talented CEOs or not is ambiguous due to the endogeneity. The
firms with talented boards would be likely to pay more to CEO. I also find that the
firms with high sales pay more to outside directors. A 1% increase in sales makes
board compensation increase by 0.66%. Finally, board pay is 0.13% higher where
CEO pay is 1% higher. We can infer that the CEO and the boards are complements
in the production function.

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The value-relevance of foreign currency disclosures

Auteurs : MULLER Aline (Hec Management School Liège Univ.) and VERSCHOOR Willem (Radboud University Nijmegen) Email :

Intervenants : MULLER Aline (Hec Management School of the University of Liège)

Rapporteurs : DUMONTIER Pascal (University Grenoble 2)

This paper studies the value-relevance of FCD disclosures on an unique and extensive
ample of European companies. Our findings show that these firms use FCDs to hedge
and not to speculate but that the impact of hedging strategies’ disclosures is statistically
and economically weak revealing that either (i) managers hedge only a small proportion
of the currency risk they are facing, or that (ii) investors make systematic errors when
assessing the link between disclosed FCD usage and firms’ risk exposures. We find strong
evidence in favor of the existence of economies of scale in hedging and that European
firms engage in hedging programs in response to tax convexity. Our results tend to support
financial distress motives to hedge, but no evidence is found in favor of agency costs related
motives. Whereas the degree of international involvement strongly determines the magnitude
and significance of a firm’s exchange rate exposure, it appears that large firms benefit from
the diversification of their foreign operations and are to a greater extent capable of
implementing operational hedging strategies.

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