How Does Intragroup Financing Affect Leverage? Belgian Evidence

Posted: 8 Dec 2005

See all articles by Ilse Verschueren

Ilse Verschueren

Vrije Universiteit Brussel (VUB)

Marc Deloof

University of Antwerp; University of Antwerp - Antwerp Management School

Abstract

We hypothesize that the lower costs of asymmetric information and financial distress and the potentially higher tax benefits associated with intragroup debt will cause firms with access to such funds to have higher leverage. The presence of intragroup debt could worsen the relations between the firm and non-group creditors, resulting in lower non-group debt levels. Intragroup guarantees could improve these relationships and thus lead to higher debt levels. We examine how the presence and the amount of intragroup debt are related to total leverage and non-group leverage for 958 large non-financial Belgian firms. Belgian firms provide an interesting case for research on this relationship, as internal capital markets play an important role in their financing. We also analyze the relationship between the presence of intragroup guarantees and leverage of these firms. Our empirical analysis confirms the hypotheses.

Keywords: Leverage, business groups

JEL Classification: G32

Suggested Citation

Verschueren, Ilse and Deloof, Marc, How Does Intragroup Financing Affect Leverage? Belgian Evidence. Journal of Accounting, Auditing and Finance, Vol. 31, No. 1, Winter 2006, Available at SSRN: https://ssrn.com/abstract=868884

Ilse Verschueren

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium
+32-2-629 21 93 (Phone)
+32 2-629 20 60 (Fax)

Marc Deloof (Contact Author)

University of Antwerp ( email )

Prinsstraat 13
Faculteit TEW
Antwerpen, 2000
Belgium
+32 3 265 41 69 (Phone)
+32 3 265 47 99 (Fax)

HOME PAGE: http://https://www.uantwerpen.be/en/staff/marc-deloof/

University of Antwerp - Antwerp Management School ( email )

Boogkeers 5
Antwerp, 2000
Belgium

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