Influence Of Shareholders Research Articles

Large Shareholder Premium

We develop a theoretical model to study investors' trading behavior in the presence of large shareholders' influence on a firm's equity. We show that, for a good stock, large shareholders may invest a higher proportion of their wealth in the firm than smart small investors, although they predict the same equity return. Insight is also cast into the impacts of board structure on the firm's equity when the firm possesses several large influential shareholders: (i) the large shareholders collude in trading, and each tends to invest more aggressively as other large shareholders do, and (ii) firms with sole ownership can outperform those with dispersed ownership, if the impact coefficient of the former case exceeds or coincides with the aggregated impact coefficients of the latter.

Cyber democracy for better board representation? The effect of e-voting on excess control in an emerging economy

With a growth in shareholder activism, the influence of shareholders on the make-up and selection of board members is increasingly acknowledged but under-explored. Focusing on one element of activism, this article considers the adoption and use of electronic voting (e-voting) for board elections in emerging economies, testing its effect on the excess control of controlling shareholders. Using a sample of board elections at 809 publicly listed Taiwanese companies, results challenge convention on governance and shareholder democracy. We show that adopting e-voting counterintuitively leads to greater levels of excess control which subsequently harms firm performance—an effect more pronounced in firms characterized by a pyramidal control structure and family-controlled firms. Findings offer an alternative view on shareholder democracy, revisiting expectations of benefits accrued from e-voting. JEL Classification: M10, L21, L25

Executive Equity Compensation Plans and Board of Director Discretion over Equity Grants

Executive equity compensation is granted out of an equity incentive plan that must be approved by shareholders. Equity incentive plans are an important precursor to equity grants because plan terms give boards of directors discretion over the amount and features of equity that can be granted without further shareholder approval. We predict and find that equity plan proposals give boards more discretion over grants when the firm faces greater labor market competition and more volatile stock returns and when shareholders have less influence over the board. Shareholders vote less favorably for plans that confer greater discretion to boards but that relation weakens with labor market competition and shareholder influence. We also find evidence of more discretion facilitating larger equity grants in response to stock price declines. Overall our findings provide insights into the determinants of equity compensation plan characteristics that affect board discretion over equity grants and illuminates how firms balance needs to respond to labor market pressure and volatile operating environments against the governance and oversight of executive equity compensation.

The Proportion of Shares Held by the Largest Shareholder and the Proportion of Independent Directors

In this paper, the relevant data of the proportions of major shareholders and independent directors from 2008 to 2017 are examined. Firstly, the functions of the board of directors and the role of independent directors are introduced. Then, the impact of the institutional changes of the board of directors on the proportion of independent directors is investigated. Next, the determinants of the structure of the board of directors are reviewed. Thus, two hypotheses are proposed. According to the regression results of the model, hypothesis 1B presents positive significance. It can be concluded through the influence of the largest shareholder’s shareholding ratio on the proportion of independent directors in the board of directors that the higher the shareholding ratio of the largest shareholder, the higher the proportion of independent directors. By increasing the proportion of independent directors, the voting space of non-independent directors will be squeezed, so as to increase their control. This study reveals that the ownership structure is an essential factor influencing the structure of the board of directors, constituting a crucial supplement to the literature on the determinants of the structure of the board of directors.

Board Independence and Board Size: An Examination of Other Shareholder Constraints

We examine whether large shareholders (other than the largest shareholder) could constrain the influence of the largest shareholder by electing more independent directors to the board. Moreover, we assess whether this constraining ability is related to the size of other large shareholders' ownership position relative to the largest shareholder. Using a sample of 13,951 firm-year observations from the unique Chinese capital market between 2004 and 2014, our empirical results indicate that other large shareholders can elect a larger number of independent directors to the board when their share ownership increases. However, these other large shareholders have increased voting power on the board (through a larger percentage of independent directors) only if the largest shareholder owns less than 30% of the company's shares. When the largest shareholder owns less than 30% of the shares, we find that other shareholder constraints are associated with a larger number of independent directors, a larger percentage of independent directors on the board and a larger board size. In addition, board size partially mediates the relationship between other shareholder constraints and the percentage of independent directors. For companies in which the largest shareholder owns at least 30% of the shares, our results indicate that other shareholder constraints are associated with a higher number of independent directors and larger boards, but are not associated with the percentage of independent directors. Moreover, the increased board size fully mediates the relationship between other shareholder constrains and the percentage of independent directors. A larger number of independent directors, without an increase in the percentage of independent directors, suggests that the relationship between other shareholder constraints and the percentage of independent directors is mainly driven by the other shareholder constraints/board size relationship, rather than by an increased percentage of independent directors. Our results indicate that minority shareholders may have a voice on the board, but greater board voting power is more difficult for the minority shareholder to obtain.

The influence of family board involvement on working capital management

While research on long-term capital structures of family and non-family firms is well established, differences in current assets- and liabilities-management are largely under-researched. The aim of the study is to examine whether the type and degree of family involvement in the firm affect the efficiency of working capital management. Employing a partially hand-collected panel of 278 listed firms from 2000–2013 this paper analyzes the impact of family shareholders as owners, managers, and supervisors on working capital handling in Germany. The results show that primarily the share of family members in the executive board increases the length of the cash conversion cycle (CCC), particularly in smaller and non-service firms. Most notably, family management increases the inventory period (DIO). The higher average equity ratio of family firms suggests that family firms may face reduced financing pressure to address such inefficiencies in current assets and current liabilities management. Furthermore, family-managed firms may be less professional in their working capital management. The findings contribute to the literature by showing that in a country with a less investor-friendly corporate governance system, family influences on working capital management are primarily due to management presence, not plain shareholder influence. The results stress the need for researchers to consider the degree of family management involvement when analyzing the financial aspects of family firms.

Interest on Equity versus Dividends: the Role of Shareholder Identity on Corporate Tax Avoidance

Most Brazilian public corporations have controlling majority shareholders. Meanwhile, the Brazilian tax code regarding payout income treats differently different kinds of shareholders depending upon their legal nature. Therefore, depending upon the controlling shareholder’s identity, the payout policy of Brazilian firms may be suboptimal for minority shareholders. We investigate this agency conflict in a sample of 404 Brazilian firms over 12 years. Using a novel measure for how much firms are exploiting the tax advantages of Interest on Equity – IOE (IOE/IOE*), we find evidence that the identity of the controlling shareholder influence both the way firms distribute profits (cash dividends or IOE), the propensity, and the amount paid out as IOE. The presence of institutional investors and firm listing in the special corporate governance segment in the stock exchange Novo Mercado significantly increase cash payouts in the form of IOE vis-a-vis cash dividends, reducing overall taxation (firm-level plus investor level) for the average firm. These results are robust to several model specifications and endogeneity tests. Overall, our evidence suggests that shareholders’ identity influences payout policy through the taxation channel.

Nonlinear impacts of board independence on debt financing: Contingent on the shareholdings of the largest shareholder

AbstractShareholder interest is unprotected until and unless precise financial decision making is in place. Although literature supports the independent directors' monitoring function in a decision‐making process, for a controversial debt financing issue, the influence of the largest shareholders may hinder such an action. This study aims to delineate the association between board independence and debt financing when the largest shareholders are likely to play a significant role between them. With a sample of Vietnamese listed companies from 2007 to 2016, our regression analyses show that a nonlinear U‐shaped relationship between level of board independence and debt financing is stronger among the largest shareholders with a high level of shareholdings in their shareholding group than the full sample. This finding implies the determining influence of the largest shareholders with a high level of shareholdings in a company. However, this association is not found in companies with a low level of shareholdings by the largest shareholders. Results reveal that the largest shareholders have the incentive to influence the decision making of independent directors about debt financing when their shareholdings are high. Specifically, issuing more debt to raise capital for business reduces the risk of the largest shareholders losing their controlling rights. The results are further supported by several robustness checks and controlling for economic events such as the global financial crisis and ASEAN Economic Community.

Shareholders and Firm Value for Manufacturing Companies Listed in Indonesia Stock Exchange

Domestic institutional shareholders and foreign shareholders differently influence firm value. Using panel data from the manufacturing company listed in the Indonesia Stock Exchange (IDX), from 2014 to 2017, and regression analysis, these types of shareholders have a positive and significant impact on the firm value with an inverted U-shaped. The influence of domestic institutional share-holders to the firm value is more significant than that of the foreign shareholder indicated by the coefficient value from the regression results. The best combination of shareholders to obtain the optimum firm value are the domestic institutional shareholder no more than 35.26 percent and the foreign shareholder no more than 47.61 percent. The greater share ownership will increase shareholder intervention and benefit the majority shareholder. Effective monitoring improvements are needed so that the majority of shareholder intervention can be reduced.

Shareholders' Social Network, Environmental Uncertainty, and Companies' M&A Decisions: Evidence from Companies in Coastal Regions of China

Li, C. and Zhang, Q., 2020. Shareholders' social network, environmental uncertainty, and companies' MA Zhang, M., and Liu, R. (eds.), Advances in Coastal Research: Engineering, Industry, Economy, and Sustainable Development. Journal of Coastal Research, Special Issue No. 106, pp. 285–289. Coconut Creek (Florida), ISSN 0749-0208.China's merger and acquisition (M&A) activities are increasingly emerging in recent years, especially in coastal regions, which are the most economically active regions. Shareholders are the final decision makers of M&A, and their social network has more and more influence on M&A decisions. This article selected China's A-share listed companies in coastal regions from 2011 to 2018 as research samples and empirically tested the influence of shareholders' social network on companies' M&A decisions. We found that shareholders' social network can significantly enhance companies to make M&A decisions. Specifically, with stronger centrality, companies have more tendencies to make M&A decisions. In addition, we examined the moderating effect of environmental uncertainty on the relationship between them. We found that environmental uncertainty can positively moderate the relationship between shareholders' social network and companies' M&A decisions. Therefore, it is necessary for companies to explore and optimize their positions in the shareholders' social network, as well as take full account of the possible impact of environmental uncertainty to make reasonable M&A decisions.

Corporate Governance of Banks and Financial Institutions: Economic Theory, Supervisory Practice, Evidence and Policy

Banks are special, and so is the corporate governance of banks and other financial institutions as compared with the general corporate governance of non-banks. Empirical evidence, mostly gathered after the financial crisis, confirms this. Banks practicing good corporate governance in the traditional, shareholder-oriented style fared less well than banks having less shareholder-prone boards and less shareholder influence. The special governance of banks and other financial institutions is firmly embedded in bank supervisory law and regulation. Most recently there has been intense discussion on the purpose of (non-bank) corporations. Shareholder governance and stakeholder governance have been and still are the two different prevailing regimes in the United States and in Europe, particularly in Germany. Yet for banks this difference has given way to stakeholder and, more particularly, creditor or debtholder governance, certainly in bank supervision and regulation. The implications of this for research and reform are still uncertain and controversial. The regulatory core issues for the corporate governance of banks are manifold. A key problem is the composition and qualification of the (one tier or two tier) board. The legislative task is to enhance independent as well as qualified control. Yet the proposal of giving creditors a special seat in the board disregards the reality of labor codetermination. Giving bank supervisors a permanent seat in the board would create serious conflicts of interest since they would have to supervise themselves. There are many other important special issues of bank governance, for example the duties and liabilities of bank directors in particular as far as risk and compliance are concerned, but also the remuneration paid to bank directors and senior managers or key function holders. Claw-back provisions, either imposed by law or introduced by banks themselves, exist already in certain countries and are beneficial. Much depends on enforcement, an understudied topic.

Do minority acquisitions transfer better corporate governance practices? An analysis of UK's cross-border minority investments

This study examines the influence of minority shareholders on the transfer of corporate governance practices into companies in other countries where they invest. By analysing UK firms that acquired a minority ownership in foreign firms between 1993 and 2014, we find evidence of better corporate governance in the board structure of target foreign firms following UK firms taking a minority shareholding, the extent and nature of the changes varying depending on the quality of investor protection in the country the foreign target firm is located. Our findings contribute to the on-going debates on the spillover effect of better corporate governance practices via cross-border mergers and acquisitions as well as relationship between internal (board of directors) and external (country's quality of investor protection) corporate governance mechanisms.

Reinventing Institutions: Trust Offices and the Dutch Financial System, 1690s-2000s

Trust offices (in Dutch: administratiekantoren) that repackage securities have been a central institution in Dutch finance since the late eighteenth century. Their basic form and functioning have remained largely the same, but over time, the repackaging has come to serve a variety of very different purposes. We argue that trust offices have been reinvented several times to adapt to changing circumstances. Originally set up for administrative convenience, they helped to create liquidity, notably for foreign securities. As from the 1930s, their most prominent purpose became to shield directors of large corporation from shareholder influence and hostile takeover threats. This is still their most common function in their current reincarnation as dedicated foundations, each tied to a particular company and largely controlled by its board and executives.

Shareholders’ activism as a moderator of the relationship between corporate governance and return on investment

The purpose of shareholders’ involvement in the process of governance is to add corporate value and achieve better governance and firm performance (FP). However, corporate governance (CG) practices can vary from country to country and change over time. This study examines the moderating influence of shareholders’ activism (SA) on the CG effectiveness – FP relationship in non-financial companies listed in the Libyan Stock Market between 2007 and 2016. CG effectiveness was the independent variable and consisted of five dimensions: board of directors, monitoring committee, audit committee, nomination and compensation committee, and ownership. Leverage, firm age and firm size were used as control variables. Return on investment was used to assess the corporate performance. SA was tested as a moderating variable using the interactive regression models. The study found out that the CG effectiveness is positively and significantly related to return on investment (beta = 0.608, p < 0.01). This relationship was strengthened by SA (R2 = 0.053, P < 0.05). Overall, the study shows that SA boosts the relationship between CG and FP in the Libyan Stock Market.

Влияние отношений собственности на элементы корпоративного управления в российских компаниях

The article deals with the influence of ownership relations on the elements of corporate governance in modern Russian companies. The assessed parameters that help to reveal the rela-tion have been offered: shareholder influence, notice of a general meeting of shareholders, infor-mation in notifications, availability of general meetings of shareholders, proxy voting, financial re-porting standards, access to documentation, etc. The analysis of the specific features of corporate governance in the Russian public joint-stock companies on the basis of open sources of information has been carried out. The study was conducted using the GAMMA method developed by the rating agency Standard & Poor’s. The main results of the study showed that the greater the representation of minority shareholders and/or higher their activity, the more independent directors in the company, the higher the level of disclosure. If there is one large private shareholder in the company, he can also act as chairman of the board of directors. It is difficult to assess the impact of ownership relations on corporate governance in state-owned companies. If the company has a small number 
 of minority shareholders and their activity is low, transparency is limited only by disclosure 
 of mandatory information. It has been inferred that the peculiarities of relations between shareholders, as well as relations between shareholders and hired managers indirectly affect corporate governance’s elements. Models of the corporate control in the Russian Federation have been given (private enterprise model, managers' collective ownership model, concentrated ownership corporate control model, dispersed ownership corporate control model). More research is needed to identify 
 a more evident relation. The article has been written in the framework of the research work “De-velopment of property relations in a modern society”.

Price Pressure Indices, Innovation and Mergers Between Commonly Owned Firms

The potentially anticompetitive effects of common ownership are being discussed controversially. While the US agencies still display reluctance, the Commission has already invoked common ownership has part of a theory of harm in Dow/DuPont and Bayer/Monsanto. In our paper we focus on how common ownership can bear on the application of price pressure indices in unilateral effects analysis of horizontal mergers between portfolio companies. We do not assess whether the underlying premise of common ownership to lead to an internalization of shareholders’ expectations of high overall market returns is convincing. Rather, we hypothesize such common shareholder influence. Our main conclusion is that common ownership should still not be considered a general circumstantial factor indicating competitive harm with respect to post-merger price increases or effects on innovation competition. Rather, it calls for case-by-case analysis.

Stock selling during takeovers

Stock sales during takeover negotiations weaken the target board's ability to recommend against the takeover, i.e., to resist. Sophisticated shareholders therefore face a coordination problem when deciding whether to sell-out early; and their actions generate a feedback loop between trading volumes and takeover outcomes. Bidding firms, anticipating the pressurising effect of future share sales on the target board, may reduce their bids. We study these tensions theoretically. We find that increasing the influence of shareholders during the bidding process lowers equilibrium bids; elongates the bidding process; but raises the overall probability of bid acceptance; and raises expected premia for unsophisticated shareholders.

Institutional Ownership and Labor-Related Misconduct: Evidence from U.S. Federal Violations

We examine shareholder influence over workplace misconduct. We find that institutional ownership is negatively associated with portfolio firms’ likelihood to violate federal labor laws. Additional tests using an instrumental variables approach suggests a causal relation. We document evidence consistent with institutional investors’ aversion to poor employment practices being financially motivated: labor law violations are associated with negative stock returns and a higher likelihood of lost or settled employee lawsuits in subsequent years. Moreover, the effect of institutional ownership on workplace misconduct is stronger in portfolio firms with greater reputational concerns. We find results consistent with shareholder monitoring and voice as channels of investor influence. Institutional investors improve portfolio firms’ employment practices via decreased employee workload and increased workforce investments.

Financial market development and firm investment in tax avoidance: Evidence from credit default swap market

Abstract Lenders reduce their monitoring efforts after hedging their credit risk exposure through credit default swap (CDS) contracts, which are akin to insurance against borrowers’ adverse credit events. In this study, we examine whether, upon observing the reduced lender monitoring following CDS trading, shareholders demand that borrowing firms invest in more aggressive tax planning strategies, which were previously constrained by risk-averse lenders. Using a difference-in-differences design that exploits the variation in timing of the inception of CDS trading, we document that borrowers exhibit greater tax avoidance after the inception of CDS trading. Consistent with shareholders stepping up their demands post-CDS, we find that the increase in tax avoidance is stronger for (i) firms with more powerful and influential shareholders, as measured by dedicated institutional investors, (ii) firms with stronger shareholder defenders, as measured by board independence and board size, and (iii) firms with more strategic default options. We also find that borrowers with higher levels of tax avoidance are less likely to file for bankruptcy in the future. Our findings are robust to a battery of sensitivity checks, including controlling for cost of debt and endogeneity, as well as using alternative measures of tax avoidance.

Shareholder Influence in Governance: The Role of Institutional Investors and Shareholder Activism

Shareholder Influence in Governance: The Role of Institutional Investors and Shareholder Activism