Multiple large shareholders, control contestability and debt maturity : A study on the conflict of interest over debt maturity between minority and large shareholders on the Swedish stock exchange

Abstract: Background: Sweden has a tradition of a concentrated ownership structure where many owners use dual asset classes to maintain corporate control by possessing small portions of the dividend rights. Financial literature has shown that these controlling owners find more incentives to divert corporate resources for private use, at the expense of shareholders. Recent studies also show that involvement in extraction of private benefits leads to long maturity debt as controlling owners avoid frequent monitoring by lenders. As this causes a conflict over corporate debt maturity between controlling and minority shareholders, we investigate if the presence of multiple large shareholders (MLS) mitigates this conflict through control contests. Purpose: The purpose of this thesis is to examine and analyze how different ownership structures affect the informative environment within a firm. In addition, the thesis investigates how ownership structure affect debt maturity structure and what this mean for large and minority shareholders. Method: The study uses a quantitative approach with panel data of 74 publicly traded non – financial Swedish firms over the period of 2006 – 2014. A deductive approach has been applied in order to explain empirical results from theory and previous literature. Results: We find evidence that controlling owners with a separation in control and cash flow rights tend to insulate themselves through long term debt, creating a bad informative environment with information asymmetry and agency costs. Furthermore, our results show robust evidence that MLS mitigates these problems since control contest between large shareholders leads to a shorter debt maturity, yielding a better informative environment. In addition, our results imply that MLS may be an important factor in facilitating financing as investors associate these firms with less risk of extraction of private benefits.