Capital structure and oligarch ownership

Abstract

This study examines the effects of oligarch ownership on corporate capital structures. Using panel data from Ukraine, I find that oligarch–owned companies employ significantly more debt and liabilities than their peers. However, there is no direct relation between oligarch ownership and target capital structure. Whereas the determinants of target leverage are similar across all owners, differences in firm characteristics also have a fairly small effect. I show that larger leverage is due to better access to debt, which results in lower rebalancing costs and faster restructurings of oligarch–owned companies. The findings clearly suggest that oligarchs benefit from the accumulated advantages.

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Fig. 1

Notes

  1. 1.

    The term “oligarch” denotes a post-Soviet industrial and/or financial magnate (usually Russian or Ukrainian) who “controls sufficient resources to influence national politics” (Guriev and Rachinsky 2005).

  2. 2.

    Two main focuses of capital structure studies include the determinants of capital structure choice (e.g., Rajan and Zingales 1995; Jõeveer 2013) and testing of the particular theories, such as static trade-off, dynamic trade-off, pecking order, agency theory, or market timing model.

  3. 3.

    “For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them”—The Bible (New International Version), Matthew 25:29.

  4. 4.

    See KyivPost, “Government nationalizes PrivatBank, guarantees deposits” (Dec. 18, 2016) and BBC, “Ukraine’s biggest lender PrivatBank nationalised” (Dec. 19, 2016).

  5. 5.

    Stock Market Infrastructure Development Agency of Ukraine database, http://smida.gov.ua.

  6. 6.

    The first-ever ranking was published by Korrespondent in 2006. Focus launched its rating in 2007, whereas Forbes (Ukraine) published its first ranking in 2011. Several available rankings include fewer or greater than 100 persons.

  7. 7.

    Industries are classified according to international standard industrial classification of all economic activities (Rev.4). See industry composition of the dataset in Appendix 1.

  8. 8.

    As mentioned earlier, firm selection during the privatization was not random. Nevertheless, it is not clear to what extent differences between oligarch and non-oligarch firms come from non-random selection of ownership.

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Acknowledgements

I thank two anonymous referees for valuable comments and suggestions. All remaining errors are mine.

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Correspondence to Demid Chernenko.

Appendices

Appendix 1. Detailed dataset statistics

See Tables 6, 7 and 8.

Table 6 Industry structure of the dataset
Table 7 Time structure of the dataset
Table 8 Descriptive statistics of variables

Appendix 2. Robustness checks

This appendix discloses the following robustness checks (see text for the further details):

See Tables 9, 10, 11, 12, 13, 14, 15 and 16.

Table 9 Alternative specifications (main sample)
Table 10 Static model (main sample)
Table 11 Static model (ownership sub-samples)
Table 12 Instrumental variables regressions (main sample)
Table 13 Instrumental variables regressions (ownership sub-samples)
Table 14 Regressions with outliers (main sample)
Table 15 Regressions with outliers (ownership sub-samples)
Table 16 Regressions using the trimmed dependent variable

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Chernenko, D. Capital structure and oligarch ownership. Econ Change Restruct 52, 383–411 (2019). https://doi.org/10.1007/s10644-018-9226-9

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Keywords

  • Capital structure
  • Leverage
  • Oligarchs
  • Influential ownership
  • Connected firms
  • Cumulative advantage

JEL Classification

  • G32
  • P31