High Ownership Concentration Research Articles

Dividend smoothing and ownership concentration: Evidence from Latin America

AbstractWe evaluate the impact of ownership concentration on dividend smoothing for six Latin American economies characterized by both a low level of investor protection and high ownership concentration. Using a panel data set, we find that firms with higher ownership concentration tend to engage more in dividend smoothing, which is more evident for firms with high growth opportunities and greater financial constraints. Our results also show that companies with a mandatory minimum dividend rule (Brazil and Chile) do not engage in dividend smoothing as much as companies without this regulation (Argentina, Colombia, Mexico, and Peru). These results are consistent with the idea that in countries where the legal system does not protect minority shareholders, firms would smooth dividends to build a reputation for moderation in expropriating shareholders. According to our results, this need for reputation would be more important for firms with high ownership concentration, more growth opportunities, and greater financial constraints.

The influence of ownership structure and board independence on the cost of debt in BRIC countries

Agency theory predicts that the default premium on debt is determined by the intensity of agency conflicts since they affect the risk of debtholders. This effect is especially important in emerging countries with high ownership concentration and low protection of minority owners. This paper presents an empirical analysis of the influence of ownership structure and board independence on the cost of debt in BRIC countries over the period 2007–2020. The main finding of the study is the presence of significant country-specific effects of ownership structure on the cost of debt measured with the G-spread on corporate bonds, as well as the absence of effects of board independence. According to our results, concentrated ownership and state ownership increase the cost of debt in Brazil and Russia, while decreasing it in China. We reveal that institutional investors help mitigate the risks of debtholders in China, while insider ownership decreases the default risk in Brazil.

Does Political Connection and Family Business Create or Destroy Firm Performance: Lessons Learned from Malaysia

This study examined the effect of the family business on firm performance and whether the political connection moderates these relationships. Final sample consisted of 1,969 firm-year observations from 2013 - 2017. Family characteristics and political connections data were hand-collected from annual report and financial data were extracted from Eikon Datastream. We found that family chairmanship and high family ownership concentration can destroy firm performance, exhibited by low Tobin Q. However, the moderating effect of political connection between family business and firm performance showed a positive and significant association. This implies that politicians in the family firm can create firm performance as they can work as external watchdogs. Additional analysis showed that political connections in high family ownership can destroy firm performance. These findings provide practical implications for regulators and investors that they should be mindful of the designation of family members and appointment of politicians in firms as it may create agency costs and destroy firm performance. This study adds to the limited, albeit important evidence on the joint effect of politically connected firms and family businesses on firm performance. Keywords: family business, political connection, firm performance

The influence of bank governance structure on green credit.

The introduction of green credit policy provides an important idea to solve the contradiction between economic development and environmental protection. Based on fuzzy-set Qualitative Comparative Analysis (fsQCA) method, from the perspective of bank governance structure, this paper selects ownership concentration, independence of the Board, executive incentive, activity of Supervisory Board, degree of market competition and loan quality as antecedent variables to analyze the path of their impact on green credit. It is found that: (1) The main way to achieve high-level green credit is high ownership concentration and good loan quality. (2) The configuration of green credit has causal asymmetry. (3) Ownership structure is the most important factor affecting green credit. (4) There is a substitution between the low independence of the Board and the low executive incentive. The low activity of Supervisory Board and the poor loan quality are also substitutable to a certain extent. The research conclusion of this paper is helpful to improve the green credit level of Chinese banks and win the green reputation for banks.

The Exit Threat of Non-controlling Major Shareholders and Corporate Financial Risk

Corporate governance plays a crucial part in corporate financial risk but the traditional means of corporate governance are limited. The means of corporate governance based on the exit threat of non-controlling major shareholders have been paid more and more attention. Based on this, this paper selects the China's A-share non-financial listed corporates from 2011 to 2021 as samples to explore the relationship between the exit threat of non-controlling major shareholders and corporate financial risk. It is found that exit threat can lower the financial risk of corporates; the reduction effect is more significantly for large scale and state-owned companies; high ownership concentration and high return on assets can strengthen the reduction effect of the exit threat on financial risk. This paper confirms the governance role of exit threat, and provides a new way to reduce financial risk for companies.

Corporate governance and cost of equity: the moderating role of ownership concentration levels

PurposeThe study analyzes the influence of corporate governance and ownership concentration levels on the cost of equity. Further, the authors extend the literature by investigating the moderating effect of ownership concentration levels (i.e. at 5%, 10% and 20%) on the relationship between corporate governance and the cost of equity.Design/methodology/approachThe study applies several robust panel regression techniques to a sample of 114 active non-financial companies listed on the Pakistan Stock Exchange from 2011 to 2016. Corporate governance was measured through a unique index comprising 30 governance attributes. The cost of equity was measured through the capital asset pricing model. Further, the authors construct three variables for ownership concentration levels, i.e. at 5%, 10% and 20%. To address the endogeneity problem, the one-lagged variable model and GMM approaches were also applied.FindingsThe results indicate that better corporate governance reduces the cost of equity, while ownership concentration at high thresholds would increase the cost of equity. Further, the authors find that ownership concentration at the 20% threshold moderates the relationship between corporate governance and the cost of equity. Thus, the authors argue that firms can minimize the risk faced by shareholders by implementing substantive corporate governance mechanisms. In addition, effective corporate governance mechanisms at high ownership concentration levels are imperative for managing the cost of equity.Originality/valueThe study reports novel evidence that ownership concentration at a high threshold moderates the effect of corporate governance on the cost of equity.

The interaction between corporate governance and financial performance: an Implementation for the UK Banks

Purpose- There is a wide range of literatüre that study the relation between corporate governance and financial capability of firms. Choudhury & Alam (2013) defines corporate governance as the relationship between corporate management, executives, the providers of equity, and people and institutions who save and invest their money to get a return. Reddy et al (2013) claimed that a good corporate governance system allows companies to have easier access to resources, lower costs of capital, enhance stakeholder reputation and improve organisational performance. The purpose of this study is to examine the relationship between the performance of commercial banks in the UK with internal corporate governance elements. Thus, the listed commercial banks that works in the UK London Stock Exchange (LSE) considered as sample of this study. Hence, using availability data of the Financial Times Stock Exchange 350 (FTSE 350) companies including banks that operate in LSE, the period (2011-2020). Methodology- The study employs a sample of banks trading on (LSE) in the UK, the study uses the quantitative research method, and the data is collected by using DataStream databases, as well as annual reports of listed banks in( LSM). The hypothesis has been tested and analysed by using multivariate fixed-effect regression to examine the relationship between corporate governance mechanisms and the financial performance of FTSE350-listed banks. Followed by robustness tests performed on the relationships to reveal any statistical issue that can change or deform the results of the study. The banks' performance was measured by using Return on Assets Ratio (ROA), Return on Equity (ROE), and TOBIN’s Q. While, corporate governance variables are board size, board independence, board meeting, board female, audit committee independence, audit committee meeting, audit committee financial expertise, ownership concentration, and ownership institutional. Moreover, the study implemented a control variable which is based on the previous literature such as leverage, bank size, bank age, and capital adequacy ratio. Findings- The result of this study shows that corporate governance's effect on bank performance depends on the performance measure as well as the governance attribution examined. In general, corporate governance dynamics show a negative correlation with all banks' performance proxies except ownership structure (ownership concentration, Institutional Investors) Concerning control variables dynamics indicate a negative correlation except capital adequacy. Conclusion- There is increasing interest in the study of corporate governance and its impact on financial and non-finance firms' performance crosse the world. As mentioned earlier the many objectives of the study is to determine the relationship between corporate governance and bank performance in the UK. Based on the analysis the study concluded that banks operating in the UK would improve their performance with less board independence, fewer board meetings, higher audit committee independence, higher ownership concentration, and less institutional ownership. Keywords: Corporate governance, board structure, ownership structure, audit committee structure, bank performance. JEL Codes: G30, G32, G38

The Effect of Board Independence, Gender Diversity and Board Size on Firm Performance in Malaysia

The aim of this research is to investigate the effects of corporate governance characteristics on a company’s financial performance. To this end, board independence, board gender composition and board size were tested to determine whether they have any influence on a firm’s financial performance. Given the high concentration of ownership in listed companies in Malaysia and the prevalence of family ownership, this research provides evidence from an emerging market. The Malaysian Code on Corporate Governance (MCCG) was developed based on the UK Hampel Report and the UK Corporate Governance Code, where firm ownership structure is dispersed and family ownership is prevalent. A sample of 70 randomly selected publicly listed companies in Malaysia over the period from 2016 to 2020 was used in this study. From a multiple regression analysis, the results showed that board independence, board gender composition and board size are positively and significantly associated with financial performance; therefore, appointing more independent directors, appointing female directors to the board and appointing more directors to the board leads to higher financial performance. Hence, the initiative by the Malaysian government to mandate listed firms to have a board that comprises at least 30% women does have a business case.

Minorities' Representativeness on the Board and their Effect on the Level of Compliance with the Italian RPTs Regulation

The definition and regulation of related-party transactions (RPTs) depend mainly on the conceptual framework underlying the interpretation of such a phenomenon. While the conflict of interests hypothesis focuses on opportunistic behaviours, the efficient transaction hypothesis suggests that RPTs lead to more efficient. In such a scenario, instead of providing opposite interpretations, the contingency hypothesis considers the potential risks and benefits associated with specific RPTs, i.e. other contex- tual factors and corporate governance mechanisms. Among the latter, independent di- rectors, empowered by the majority of national legislations worldwide, should play a crucial role in spotlighting opportunistic behaviours to the detriment of minorities. However, in light of the many corporate scandals that have stressed the RPTs' issues, practitioners and academics have questioned their effectiveness, especially in contexts characterized by high ownership concentration, while leaving room for the so-called minority directors, i.e. independent directors appointed by minority shareholders. On this matter, aiming to analyse the potential impact of minority directors on the level of procedural compliance for the RPTs' implementation, this empirical study, based on a data set, shows that they represent a more effective tool for the full and strict adoption of the current RPTs regulation, while independent directors fail in their monitoring role and are ineffective in bolstering corporate transparency with regard to RPTs.

Institutional Investors and Earnings Management in the Korean Stock Market

ABSTRACT This study investigates whether the effectiveness of institutional monitoring varies depending on the economic conditions of emerging capital markets. By analysing the Korean context, we find that the proportion of institutional trading negatively correlates with income smoothing. This finding indicates that, given the Korean market’s structural characteristics (high ownership concentration, large systematic risk, and a high proportion of individual investors), institutional investors, on average, have a strong preference for short-term investments, which may lead to an increase in managers’ opportunistic earnings reporting to meet institutional investors’ earnings expectations. We select our sample period, with the 2008 financial crisis at its centre, and compare the relationship between the proportion of institutional trading and income smoothing across periods before and after the crisis. Notably, our findings show that, in Korea, the diminished effectiveness of institutional monitoring is more pronounced in the post-financial crisis period, characterised by sluggish market growth. Therefore, within emerging capital markets in a period of low market growth, institutional investors’ long-term investment preferences and monitoring may be subdued because the costs of institutional monitoring may outweigh its benefits. This study provides an improved understanding of the variations in institutional monitoring in emerging capital markets brought on by the market’s structural properties and conditions.

How Do Various Forms of Ownership Impact Firm Performance?

Corporate governance and ownership structures are key factors affecting companies' management, operations and innovation. This study aims to provide a better understanding of the interaction between ownership forms and firm performance by addressing the key research question: How do various types of ownership forms impact on governance efficiency and firm value? We propose to address this issue by taking the mandatorily reported shareholders' ownership characteristic to determine each ownership form and to empirically test the governance role and the impact of ownership form on firms' value. The results show that there is a high concentra-tion of state ownership among the listed companies. In terms of market performance, it is shown that companies directly controlled by the state ownership generally perform worse than companies controlled by other ownership forms, namely legal person shares, state-owned legal persons shares, and tradable shares. Based on separate forms of ownerships, our investigation has found a significant negative relationship between ownership concentration and firm valuation.

기업지배구조와 조세회피

[Purpose]This paper examines the relationship between various characteristics of the corporate governance and the tax avoidance. [Methodology]We measure the tax avoidance by using long－run effective tax rates (GAAP ETR and current ETR are used in this research) following Dyreng et al. (2008). This study examines not only the level of tax avoidance but also the sustainability of a firm’s tax strategy following McGuire(2013). [Findings]The results show that the ownership concentration has a significant relation to the corporate tax management. To explain concretely, the ownership concentration has negative associations with the corporate tax avoidance and positive associations with the sustainability of the tax strategy. It suggests that the owners face “asymmetry in cost distribution” due to much larger equity ownership, so they forgo the risky tax avoidance. It is possible to distribute tax costs, whereas it is difficult to distribute non－tax costs. The higher ownership concentration is, the more owners are concerned with non－tax costs such as potential penalty and reputation damage from being involved in a tax related lawsuit etc. [Implications]This study described the decrease in tax avoidance in companies with high concentration of ownership as “asymmetry in cost distribution” rather than capital market pressure. The “asymmetry of cost distribution” can be said to be a risk that Korea’s corporate governance structure, which exercises control over its stake, has come to bear.

Board of Directors’ Composition: Representation of Large Shareholders and Type of Ownership

We investigate the link between large shareholder representation in the governing bodies of the firm, shareholder’s governance relations and the independence of the board of directors. This research shows that the relation between ownership concentration and board independence is not linear. We also show that the combination of shareholders’ representation in the governing bodies and shareholders’ type shapes this relation. Board composition reflects shareholders’ needs of monitoring and access to information and other agency relations. Our results shed some theoretical and empirical light on the dynamics between ownership structure and board composition in a non-Anglo-American setting. We propose a classification of large shareholders considering the involvement in the governing bodies and the agency issues related to the type of ownership. Our research has implications for regulators and investors in countries with high ownership concentration. The independence of the board of directors is a critical mechanism for shareholder protection. Our results suggest that a well-established good governance practice may not tackle the issue it was originally designed for, since it was intended for contexts with atomistic ownership. This research highlights how the ‘good governance’ practice of board independence is contingent on ownership characteristics.

The role of managerial ownership in dividend tunneling: Evidence from China

AbstractResearch Question/IssueWe examine the role of corporate executives in dividend tunneling activity by controlling shareholders and whether the correlation between executive ownership and dividend tunneling is influenced by internal and external governance mechanisms.Research Findings/InsightsWe find increased executive ownership may lead to a higher level of dividend tunneling. This is further strengthened by our finding that the positive effect of executive ownership on dividend tunneling is more pronounced for firms with weaker minority shareholder protection. In addition, our results show that higher degrees of state ownership may further intensify this positive association. Finally, we find that analyst coverage has a moderating effect and constrains the collusion between controlling shareholders and executives in dividend tunneling activity.Theoretical/Academic ImplicationsOur study contributes to the literature on the role of managerial ownership in controlling shareholders' dividend tunneling activity. We fill a gap in the literature on the corporate agency problem by providing evidence that dividends have been employed by controlling shareholders as a means of tunneling and that executives with higher ownership are more likely to collude with controlling shareholders in dividend tunneling activities.Practitioner/Policy ImplicationsThis study contributes to the debates around the promotion of the cash dividend policy in China, as our findings show that cash dividends are used as a tunneling vehicle. Providing important evidence to regulators, our findings support the argument that external monitoring by financial analysts can effectively constrain dividend tunneling by dominant shareholders, especially in the context of emerging stock markets with high ownership concentration, weak minority shareholder protection, and an underdeveloped legal system.

Does digital finance promote corporate social responsibility of pollution-intensive industry? Evidence from Chinese listed companies.

It is crucial to achieve sustainable development using digital finance to promote the fulfillment of corporate social responsibility. In this paper, we study the impact of digital finance on corporate social responsibility performance of pollution-intensive industry. From the perspective of theoretical mechanism, digital finance could influence corporate social responsibility performance through financing effect. Then, we use the data of Chinese listed companies and the Peking University Digital Financial Inclusion Index of China (PKU_DFIIC) to empirically test the influence of digital finance on corporate social responsibility of pollution-intensive industry. The results show that digital finance is positively related to the fulfillment of corporate social responsibility of pollution-intensive industry. The mechanism test shows that by reducing the information asymmetry in the financial market and making them easier for enterprises to access the financial market, digital finance effectively alleviates the financing constraints of enterprises and then enables enterprises to invest more capital in corporate social responsibility. Furthermore, we find that there are heterogeneous influences of digital finance on the corporate social responsibility performance of different types of enterprises. Specially, enterprises with small scale, located in high informatization and marketization areas and eastern regions of China, and enterprises with high ownership concentration will enjoy more positive impact. By using different indicators to measure digital finance and changing samples for robustness checks, the research conclusions of the paper are still valid. Therefore, government should make more effort to support the development of digital finance, so as to promote corporate social responsibility of pollution-intensive industry and the green and sustainable development of the economy.

Credit ratings and corporate risk-taking behavior: evidence from Korea

ABSTRACT We study the period following the 1997 Asian financial crisis to show that the credit rating downgrades affect corporate risk-taking behaviour. We treat the crisis as an exogenous shock that led to improvements in the informativeness of Korea’s credit rating system, and we determine that firms that have experienced credit rating downgrades reduce their risk-taking following the crisis. However, we show that this impact is less pronounced for chaebol-affiliated firms. Furthermore, we present chaebol firms’ characteristics that mitigate the negative impact of credit rating downgrades on their risk-taking behaviour – high net internal capital flow and large ownership concentration. (JEL G24, G32)

The relationship between minority directors and earnings management: an empirical analysis in the Italian institutional setting

PurposeAlthough the previous literature considers independent directors as an internal mechanism for good corporate governance and higher financial disclosure quality, in contexts characterized by high ownership concentration, they may lack the mandate, the incentives and the ability to be an effective monitoring mechanism. Therefore, this study aims to focus on minority directors and investigate their impact on the earnings management activities for firms with concentrated ownership structures.Design/methodology/approachAs the slate voting system is a peculiar feature of Italian corporate governance regulations, which gives minority shareholders the right to appoint at least one member of the board of directors (minority directors), this paper carries out a quantitative empirical analysis based on a sample of non-financial companies listed on the Italian Stock Exchange to test the role played by minority directors in increasing incentives towards higher financial reporting quality.FindingsRobust to different model specifications, including the endogeneity test, empirical findings show a negative relationship between minority directors and earnings management, while no relationship holds between the latter and independent directors, suggesting that minority directors might promote greater directors’ accountability than independent directors in highly concentrated ownership structures.Originality/valueRelying on the empirical findings, this paper offers new insights on a peculiar internal corporate governance mechanism related to one of the most debated issues among financial market practitioners and regulators, namely, the protection of minority shareholders. Moreover, this paper offers new insights for academics and practitioners on a peculiar governance mechanism that could soon be widely adopted.

Individual investors’ dividend tax reform and corporate social responsibility

This paper examines the effect of individual investors’ dividend tax on the fulfillment of corporate social responsibility (CSR). By introducing the implementation of dividend tax reform (DTR) for individual investors, we present strong evidence that the reduction of the individual investors' dividend tax significantly reduces the fulfillment of CSR activities related to all stakeholders, except for shareholders. A plausible mechanism is that the reform encourages individual investors to increase holding periods, thereby crowding out institutional investors, which further reduces the firms’ external monitoring pressure. The effect is particularly pronounced for firms with high ownership concentration, low individual investor attention, and low executive ownership. By revealing the unintended effect of the individual investors’ DTR on the firms’ fulfillment of CSR, our study presents a clear policy to regulators concerned with CSR and investor protection.

Conservative Financial Reporting and Cost of Equity: Evidence from Korea

Prior studies provided mixed evidence regarding the relation between earnings conservatism and cost of equity. This paper investigated whether earnings conservatism affects the cost of equity capital in emerging Korean market. Further, we explored whether the relation between conservatism and the cost of equity is influenced by the two economic factors, the ownership concentration of the largest shareholder and information asymmetry. Our empirical results showed that earnings conservatism is negatively related to the cost of equity capital and also the relation is more pronounced for the firms with high ownership concentration of the largest shareholders and high information asymmetry proxied by stock return volatility. These results suggested that the positive aspects of conservative financial reporting in the capital market are more strengthened in the poor information environment and more concentrated ownership structure, which is consistent with demand side of conservatism. Keywords: Accounting conservatism, cost of equity, information asymmetry, ownership concentration DOI: 10.7176/EJBM/14-10-12 Publication date: May 31 st 2022

Landed Nation: Land Reform and Ethnic Diversity in the Interwar Polish Parliament

AbstractThis article investigates the ethnic entanglements of the land reform debate in the first Polish Diet (1919–1922). Against the backdrop of global comparative studies, interwar Poland, haunted by land hunger, rural poverty, and high concentration of land ownership, is an odd case. Despite conditions conducive to far-reaching land reforms, that is, a high level of inter-elite conflict and semiautocratic order, the Polish reform was very moderate, if not disappointing. Unpacking the series of moves in the debate and the sequence of hairbreadth voting on its shape, I ask why, despite broad acceptance of the reform across the political spectrum, it could not attract enough support to be swiftly executed. The ethnic composition of the country triggered controversies concerning German farmers and peasants of the ethnically diversified eastern borderlands. Major political parties shared tacit Polish nationalism, but the history of political alignments made the nationalist politicians susceptible to the lobbying of the landed elite and estranged them from peasant parties. The land holdings of nobles were considered a bulwark of the nation, which effectively blocked the alternative idea of integrating the ethnic minorities via land ownership.