The Relationship of Private Benefits of Control and Financial Leverage: Evidence from the Russian Market

This paper studies the relationship between private benefits of control and financial leverage of a firm. The mutual relationship and difference between short-term and long-term leverage in relation to private benefits are considered. Private benefits are calculated in two ways: a voting premium approach for dual stock companies and the number of affiliated companies. On the hand collected sample of Russian companies listed on the Moscow stock exchange for the period from 2005 to 2015 it was found that the private benefits estimated through the voting premium decrease long-term leverage and they are negatively influenced by short-term leverage. In addition, long-term debt increases the private benefits estimated through the number of affiliated companies. The results are evidence of the simultaneous relationship and that short-term leverage can effectively curb the private benefits, while long-term debt can be used as a source of intercorporate deals for extracting private benefits of control.