Bank shareholding, corporate governance and the adjustment cost of debts

A large strand of the literature exploring the mechanisms linking the ownership structure of firms and their indebtedness considers institutional investors as a highly homogeneous group. Among this category of investors, banking institutions are still attracting little attention despite their strong influence on capital structure through their simultaneous role of lenders and shareholders. The case of the French firms was also scarcely explored. This paper aims to fill these gaps by checking the impact of bank shareholding on the indebtedness and the cost of debt adjustment of firms. We use a sample of listed French SMEs observed between 2007 and 2017 and estimate a dynamic panel model using one-step GMM with robust standard deviations. The robust two-step system GMM is performed for robustness check while sector and time dummies are introduced for the sake of sensitivity check. The results indicate that bank shareholding positively impacts French firms' indebtedness, confirming the assumption of complementarity between the shareholding and lending roles of banks. Equity-holding by banks is shown to reduce the cost of debt adjustment mainly through their lending relationship with firms.