Dual Ownership, Capital Structure and Investment

This paper provides a theoretical model for a better understanding of the impact of dual ownership (DO) on different types of corporate finance decisions, focusing on the dynamics of debt restructuring, default, capital structure, and irreversible investment decisions. The study links the recent trend of literature on DO with that on dynamic capital structure and debt renegotiation. In our model bank debt and market debt coexist with different types of seniority. The main findings show that moderate levels of DO may lead to underinvestment and lower leverage, while the optimal bank (market) debt decreases (increases) as the weight of DO increases in the firm. Additionally, the bank (market) credit spreads decrease (increase) as DO increases.

Paulo Pereira
University of Porto
Portugal

Artur Rodrigues
University of Minho
Portugal