Abstract

This study examines the determinants of capital structure as part of the agency theory. French corporate structure with its high corporate concentration provides able us to analyze how ownership structure affects debt policy. Emphasis is placed on the role of insiders and outsiders ownership in explaining the debt ratio. The empirical study examined a sample of French companies listed on SBF 250 index and observed over the period 1997-2007. Test results show a non linear relationship between managerial ownership and capital structure. Outside shareholdings do not play a disciplinary role to effectively control the behavior of managers in a static framework. However, for high levels of managerial ownership, outside shareholdings does not significantly affect debt ratio. In addition, in a dynamic framework, we document a negative and a significant effect of external investors on debt equity ratio. Furthermore, the effect of management ownership is not significant.

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