Concentrated Ownership and Firm Responses to a Crisis: Evidence from Thailand

Abstract

This paper uses a unique and comprehensive dataset of Thai listed firms during 1995-2000 to examine whether concentrated ownership is associated with the effective or inadequate corporate governance. Rather than testing the relation between ownership structure and firm value in which the results are questionable and diverse, this study explores an impact of concentrated ownership on a critical corporate decision during crisis situations. We find that the ownership characteristics of Thai firms that are commonly shared with other emerging markets, seem not to be associated with effective corporate governance, but with the exploitation of private benefits. The results appear to contradict the hypothesis that concentrated ownership is beneficial to firms in crisis. In contrast, we present the evidence that controlling shareholders are entrenched when they employ control-enhancing mechanisms and participate in management. Hence, they are able to oppose some actions that are efficient in response to a crisis but hurt their interests.