Journal of Management & Governance

, Volume 18, Issue 4, pp 1063–1107 | Cite as

Ownership concentration, contestability, family firms, and capital structure

  • Mário Sacramento Santos
  • António Carrizo Moreira
  • Elisabete Simões Vieira


This study analyses the distribution of power among the several blockholders of a firm and the identity of those blockholders as a determinant of firm leverage. Using a sample of 694 firms from 12 Western European countries, our results support a negative relationship between ownership concentration in the hands of the main blockholder and firm leverage. Moreover, we detect that the presence of a second and third large shareholder (beyond the first blockholder) has a significant positive effect on the leverage ratio. In addition, the results show that contestability in family firms plays a more relevant role. Finally, we show that family firms do have significant impact on firm leverage level, and this impact varies depending on the legal framework and institutional environment. In our main sample the results show family firms negatively affect market leverage, supporting the theory that family firms are more averse to an increase in the debt level due to the risk of bankruptcy and financial distress as a result of having an under-diversified portfolio. In contrast, the opposite effect is found in the sample that excludes the United Kingdom. This last result cannot be explained by agency theory, given that family businesses are those that suffer less from Type I agency problems. This result suggests either some difficulty in financing their investments by issuing new equity or the need to use debt as a signal of the quality of its investments. Our results prove to be stable against a battery of robustness tests.


Ownership concentration Agency costs Leverage Family Contestability 


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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • Mário Sacramento Santos
    • 1
  • António Carrizo Moreira
    • 2
  • Elisabete Simões Vieira
    • 3
  1. 1.IPC—Instituto Politécnico de Coimbra, Avenida Doutor Marnoco SousaCoimbraPortugal
  2. 2.GOVCOPP, DEGEIUniversity of AveiroAveiroPortugal
  3. 3.GOVCOPP, ISCAUniversity of AveiroAveiroPortugal

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