Disproportional Control Rights and the Governance Role of Debt

• 成果类型: Article
• 署名作者: Dey, Aiyesha; Nikolaev, Valeri; Wang, Xue
• 署名单位: University of Minnesota System; University of Minnesota Twin Cities; University of Chicago; University System of Ohio; Ohio State University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2015.2251
• 发表日期: 2016
• 页码: 2581-2614
• 关键词: dual class; capital structure; private debt; Debt covenants; bonding mechanisms

摘要

We examine the governance role of debt in the context of U.S.-based dual class ownership structures. We hypothesize that the use of debt alleviates the conflict between shareholder classes by balancing the power of controlling insiders. We document that dual class firms have higher leverage and a greater propensity to issue private debt; they also more frequently use cash sweeps and performance-based covenants. Dual class firms with greater agency conflicts and a greater need to access the capital market appear to rely more extensively on debt. These findings are consistent with controlling insiders bonding against the agency costs associated with dual class ownership. The governance role of debt is further corroborated by the valuation effect of debt for dual class companies. Private debt issuances trigger greater positive market reactions to the inferior dual class stock in relation to both the superior dual class stock and a matched sample of single class firms. Further, leverage attenuates the previously documented adverse effect of dual class status on Tobin's q. Taken together, our analyses suggest that dual class firms use debt as a complementary governance mechanism.