Swedish Corporate Ownership and Choice of Debt: The Effect of Dual Class Shares

Abstract: Using yearly ownership and capital structure data, we estimate control-ownership divergence, due to dual class shares, in the Swedish stock market 2011-2020. We investigate its effect on the firm's choice of debt and debt-to-equity ratio through multivariate regression analysis. Our results indicate a negative correlation between the firms' control-ownership wedge and the proportion of bank debt. The results support the hypothesis of bank monitoring avoidance for firms with a higher separation of control rights and cash-flow rights for the largest owner. However, our results do not indicate that the firm's debt-to-equity ratio increased with the separation of ownership and control, contrary to our hypothesis. The results in this paper provide insight into the ongoing debate of dual class shares and the potentially hazardous incentives they create for shareholders.