Inside Shareholders Research Articles

Under-pricing of South and East Asian IPOs: An investigation of the relevance of governance quality in closely controlled companies

In this paper, we investigate the impact of national governance quality on the under-pricing of initial public offerings (IPOs) in developing South and East Asian equity markets. A significant feature of many listed companies in these markets is the dominant control position of insider shareholders or family groups. We therefore explore the issue of concentrated control when assessing the extent of under-pricing. Concentrated control implies a significant deviation between proportionate ownership and control of company assets. We demonstrate that governance quality is related to IPO under-pricing, contrary to previous research findings on developing markets. This finding is restricted to companies not associated with concentrated control. We use two proxies to identify concentrated control. We initially use the percentage of management control rights. We use company value as an alternative proxy. Our results indicate that the ‘reduced monitoring’ explanation does apply in developing markets, when we allow for the impact of concentrated control.

Do Independent Directors Matter? Evidence from Regulatory Change in an Emerging Market

ABSTRACT This research examines the operating performance of firms listed on the Taiwan stock exchange following the initial appointment of independent directors due to regulatory change. Although the firms appointing independent directors do not outperform the matched firms for all the sample firms, the results show that the appointment of independent directors does have a positive influence on the operating performance of firms in greater need of objective monitoring. Firms with lower growth opportunities, with a CEO concurrently serving as board chairman, with higher insider shareholdings, or with lower foreign institutional shareholdings tend to perform significantly better than their matched firms over the three-year period following the initial appointment of independent directors.

Ownership Concentration, Corporate Liquidity, and Dividend Payment Policy: Evidence from Indonesian Financial Industries

The main objective of this research is to analyze the effect of ownership concentration and corporate liquidity on dividend payment policy in the Indonesian financial industry. Dividend payment is measured using dividend pay-out ratio on measuring dividend payment. Corporate ownership concentration is measured using the number of shares held by legal individual investors and large block shareholders. Ownership concentration is divided into three categories, which are inside shareholders, stable shareholders, and market shareholders. Corporate liquidity is measured by corporate profit, defined by retained earnings/total assets and retained earnings/total equity, corporate leverage (total liabilities/total assets), and corporate size (log normal total assets). We apply data panel regression and the robust least square method. Based on the robust least square method of testing data panel regression, we find there is a relationship between insider shareholder, market shareholder, and dividend payment policy. In contrast, there is no relationship between stable shareholder and dividend payment policy. We also found a relationship between corporate profit, which variable is retained earnings/total assets, corporate leverage, and corporate size, and dividend payment policy. These results lead to the conclusion that dividend payments increase when ownership by inside shareholders decreases, and that when ownership by market shareholders increase corporate profit will also increase, and corporate leverageand corporate size decreases.

Ownership structure and corporate financial performance in an emerging market: a dynamic panel data analysis

PurposeThis study examines the impact of ownership structure on firm financial performance, for 146 manufacturing firms listed at the Pakistan Stock Exchange (PSX) for the period 2003–2012.Design/methodology/approachThe theoretical background of the present study is based on the agency theory. Ownership structure is measured by institutional shareholdings, insider shareholdings, foreign shareholders and government shareholdings, while return on assets (ROA), return on equity (ROE), market-to-book ratio (MBR) and Tobin's Q (TQ) are used as proxies of corporate financial performance. The dynamic panel generalized method of moments (GMM) method is employed to cater for the issue of endogeneity.FindingsWe find that institutional ownership exerts a significant positive impact on ROE and MBR, which suggests that institutional investors play a significant role in improving the financial performance of the sample Pakistani. Furthermore, the results reveal a significant positive relationship of insider ownership with ROA, ROE, MBR and TQ, which is consistent with the prediction of agency theory that concentration of insider ownership aligns the interest of shareholders with those of the managers and hence improves performance. A significant positive association of government shareholdings with ROA and ROE was also found. Therefore, policymakers may encourage government ownership in firms, which can help to improve corporate financial performance.Originality/valueThe present study contributes to the existing literature on ownership structure and corporate financial performance in an emerging market like Pakistan. It is worth mentioning that the institutional setup and corporate governance structure in Pakistan is yet at an evolving stage. Findings of this study may provide useful insights to corporate managers and investors about the relationship between ownership structure and financial performance of firms from the manufacturing sector in Pakistan.

Do Excess Control Rights Benefit Creditors? Evidence from Dual-Class Firms

AbstractExcess control rights by inside shareholders have been documented to hurt minority shareholders. This paper shows that such governance feature may benefit creditors. Using a sample of U.S. dual-class firms, I show that these firms take less operational and financial risk than similar single-class firms, consistent with insiders’ emphasis on long-term survival to access ongoing private control benefits. Such risk avoidance translates into lower borrowing costs for dual-class firms. Further, lenders are able to use specific covenants to prevent potential expropriations by insiders. The overall relationship between excess control rights and firm value may be less negative than previously thought.

Corporate governance and capital structure as driving force for financial performance: Evidence from non-financial listed companies in Pakistan

This research examines the intervention of capital structure with different characteristics of corporate governance and different measures of financial performance. Data was collected from 113 PSX listed firms ranging from 2013-2018. The study uses multiple regression approach for testing the required set of hypotheses. The results reveal that insider shareholding, and board size significantly but negatively affect financial performance whereas, audit committee’s size positively, and significantly affects financial performance. Furthermore, about 20% of CEOs hold dual positions in listed firms, which also has a positive impact on financial performance. The results also reveal that capital structure positively influences financial performance. This research adds to the literature on corporate governance and firm performance in emerging countries, particularly Pakistan.

Involuntary delisting in the Japanese stock market

PurposeThe purpose of this paper is to analyze the wealth effect of involuntary delisting and investigate insider opportunism and the role of corporate governance, liquidity and legal environment in involuntary delisting in Japan’s stock market.Design/methodology/approachThe authors use a sample of 136 involuntarily delisted firms in Japan’s stock markets between 2002 and 2012. The authors examine ownership changes of inside shareholders prior to delisting and estimate regression models for the wealth effect of involuntary delisting.FindingsInvoluntary delisting is highly disruptive in Japan, and limited liquidity of delisted stocks appears to be an important cause. However, the ownership reduction of inside shareholders before delisting is limited, totaling 2–3 percent. For delisted firms with an insider bank, the decrease in share price leading up to a delisting announcement is much less, while the decrease in share price upon a delisting announcement is far greater.Originality/valueThe study investigates involuntary delisting in regard to the opportunistic behavior of inside shareholders and the role of institutional environment in Japan’s stock market. Insiders, especially insider banks, maintain ownership in a distressful context leading to the forcible delisting of a distressed firm. The authors find some evidence that suggests that the market believes the insider bank will try to prevent the ailing firm’s insolvency. The findings are consistent with the implicit relational contracts that characterize Japanese firms.

Audit committees and systematic risk: Evidence from Taiwan’s regulatory change

This study examines the changes in the systematic risk of firms listed in the Taiwan stock market following the initial establishment of audit committees. While the results show that the changes in systematic risk are insignificant for the overall sample of firms, I do find that corporate governance influences the changes in systematic risk for the low-growth firms. Specifically, the low-growth firms with lower insider shareholdings, with a pyramidal ownership structure, not controlled by a family, or audited by one of the Big 4 accounting firms tend to enjoy the benefits of experiencing a decline in systematic risk following the establishment of the audit committee.

Die Aktionärsstruktur der Deutschen Bank, 1870-1929

Abstract I examine the ownership of Deutsche Bank between 1870 and 1930 by using shareholder lists of the general meetings from the archive in Berlin. I show that Deutsche Bank had more than 200 shareholders and was mainly widely held. The bank had no single dominant shareholder owning more than 25 percent of shares. However, attendance at general meetings was low and shareholders remained mostly anonymous. As a consequence, the general meetings of Deutsche Bank were dominated by banks and inside shareholders. Banks – holding shares predominantly as custodians of other investors – played an important role in affecting the outcome of the general meeting.

Business Groups and Corporate Social Responsibility

There is a growing literature on corporate social responsibility (CSR), but few have focused on the implications of business groups for CSR. We examine the antecedents and outcomes of CSR behaviors of group firms in Korea. We find that group affiliation is associated with higher CSR overall and for its major societal and environmental components. However, the ownership disparity between cash flow and control by controlling inside shareholders is associated with lower CSR, consistent with opportunistic rent expropriation theory. We further find that CSR initiatives can impact group firms positively in the event of bad events, consistent with insurance theory. This motive for CSR as a means of enhancing reputation capital to buffer the bad events is pronounced for group firms because of group-wide dissemination of negative reputational externality.

Shareholding Patterns and its Impact on Firm Performance: A Contemporary Study of Indian NIFTY 50 Companies

Ownership structure or the stakeholder structure of an organization often play significant role in operations decision, monitoring and control. This as a result possesses influences over process and hence performance. On the other hand, the role of stakeholders and respective conflict of interests can also be not ruled out. Under such circumstances, assessing the impact of organizational structure or stakeholder pattern and firm performance becomes inevitable to assess. In addition, the relationship between the investment pattern and respective conflicts of interests is inevitable to be examined. To ensure investment security corporate governance has played vital role that suggests assessing the inter-relationship between the stakeholder pattern and firm performance. With this motivation, in this paper an empirical study has been done to examine the impact of internal shareholding patterns on the associated firm’s performance. In this paper we have performed an empirical study where the aforementioned relationship has been examined for Indian listed NIFTY 50 companies for the duration of the financial year 2011 to 2016. Our empirical results provide evidence that insider shareholding is positively and significantly related to the firm performance as measured by market capitalization; market value by book value and Tobin’s Q.

Analyzing financial performance by integrating conventional governance mechanisms into the GCC Islamic banking framework

PurposeThe purpose of this paper is to integrate conventional corporate governance (CG) mechanisms into the Islamic banking framework in order to examine their impact on Islamic banks (IBs) financial performance (IBFP) within the Gulf Cooperation Council (GCC) context.Design/methodology/approachThe study uses a sample of 22 full-fledged IBs operating in the GCC countries over an 11-year period from 2005 to 2015. Using panel data approach, the paper develops an empirical model consists of five CG mechanisms and three control variables. The model parameters are estimated using feasible generalized least squares framework.FindingsThe results show that five internal CG mechanisms have statistically significant relationship with IBFP, measured by Q-ratio. Insider shareholding is found to be positively associated with IBFP, while institutional and government shareholdings are found to be negatively related to Q-ratio, the results being consistent with the agency theory, strategic alignment theory and property rights theory, respectively. Moreover, the results reveal that large board size and CSR engagement negatively influence IBFP, once again lending support to agency theory and trade off theory, respectively. The control variables, namely, leverage, size and age are also found to have a statistically significant relationship with IBFP.Practical implicationsIBs are urged to ensure transparency in the provision of innovative products fundamentally in contrast to conventional banking products as well as cater to the untapped markets by weaving Islamic values into the existing CG fabric, as a feasible solution to remain competitive.Originality/valueThe paper examines the relationship between internal CG mechanisms and financial performance of listed and non-listed full-fledged IBs operating in the GCC countries.

Shareholder Voice on Executive Pay: A Decade of Dutch Say on Pay

The Netherlands adopted shareholders’ say on pay over a decade ago. The general meeting of shareholders must approve the remuneration policy and any amendments to it. This Dutch approach offers fruitful insights into how say on pay works in practice. In the light of the recent European proposal to introduce a uniform say on pay, we examine the merits of the Dutch system. First, we describe the legal framework of the Dutch say on pay and its background. Then, using hand-collected voting data, information from the minutes of general meetings and ownership data for the entire Dutch say on pay period (2004–2014), we address and discuss both its direct and its indirect effects. Our study shows that, although remuneration proposals are seldom rejected, the influence of shareholders on the remuneration policy of the company is considerable. Furthermore, the Dutch approach to say on pay stimulates shareholders’ dialogue and increases pressure on boards regarding remuneration matters, even in the presence of large insider shareholders.

Corporate Governance Practices, Ownership Structure and Firm Performance: A Study of Indian Listed-Firms

Corporate governance (CG) has gained substantial ground in developed economies; it has begun to make an impact in emerging markets like India only recently. Several studies, the majority from the developed economies, have examined the relationship between corporate governance mechanisms, ownership structure and firm performance. Those studies yielded different results, affected by the nature of the prevailing economies. Investigating India's listed firms could enhance the diversity of the growing body of work that examines this relationship. Using listed Indian firms (BSE SENSEX and CNX NIFTY) we study the relationship between ownership structure, corporate governance practices and firm value. In particular we have looked into the nature of relationship between family run companies and firm value. Family based governance system is widely prevalent in the India. While the monitoring hypothesis predicts a positive relation, the entrenchment hypothesis predicts a negative one between insider shareholding and firm value. We study the details of top Indian companies in terms of market confidence and use Return on Asset (ROTA) and Market Capitalisation to Enterprise Value as proxies for Firm Value. We use regression analysis to study the impact of ownership structure and corporate governance practises on firm value. We try to explain the impact of these variables on the valuation of family run companies and analyse how different they are from the non-family run companies.

Two Proxies for Shareholder Influence: A Case of Payout Policy

Using the Banzhaf index as a proxy for voting power, this paper investigates the relative importance of the size of equity ownership and voting power of large shareholders in influencing corporate policy regarding cash dividends and share repurchase. Our empirical findings indicates that consideration of voting power in models may results in conclusions different from those that consider the size of equity ownership. Conclusions may also differ for large insider and outsider shareholders, if firms are either paying dividends or repurchasing shares, or doing both.

Board of directors’ quality and firms’ debt financing: the moderating effect of insider ownership – evidence from Omani firms

ABSTRACTThis study aims to examine the direct effects of board of directors’ quality and insider ownership on firms’ capital structure and the moderating effect of insider ownership on the relationship between board of directors’ quality and firms’ capital structure. The sample of this study consists of the time period 2005–2011. The final sample consists of 535 firm-year observations of public nonfinancial firms listed on the Muscat Securities Market (MSM). The hypotheses are tested using a random effects model. The results reveal that the coefficient sign on the board of directors’ quality is as predicted, but the coefficient sign is insignificant. Further, the results show that insider ownership is positively associated with leverage at the significant level of 10%, suggesting that the inside substantial shareholders employ higher leverage. With regard to the moderating effect of insider ownership, the findings show that the effect of the board of directors’ quality-leverage relationship becomes negative and stronger with increasing insider ownership.

STRUKTUR KEPEMILIKAN, RISIKO, DAN KEBIJAKAN KEUANGAN: ANALISIS PERSAMAAN SIMULTAN

The research explores using simultaneous regression, to examine the interdependence relationship between managerial ownership, risk, dividend policy, institutional ownership, and leverage policy for Indonesian capital market. The research tries to explain how the relationships in financial policy for manufacture firms in Indonesia. We use five models of regression to represent five different policies in firms that reflect the agency issues and conflict of interest between agent (manager), and principal (insider and outsider shareholders). Jensen and Meckling (1976) argued that agency problem arise from separation of ownership and control. Each of five policies in this research is represent conflict of interest between agent and principal. The research combined models from Crutchley, Jensen, Jahera and Raymond (1999), and Chen and Steiner (1999) to construct five-regression policies model. We find interdependence relationship between managerial ownership, risk, dividend policy, institutional ownership, and leverage policy. We also find substitution effect between dividend policy and managerial ownership, and between managerial ownership and institutional ownership as predicted by agency theory. The substitution effect showed that ownership structure effectively used to reduce the agency problem between agent and principal. The study confirms that the relationship between risk and dividend is non-linear. Keyword: Agency Theory; Managerial Ownership; Risk; Dividend Policy; Debt Policy.

Effects of Family Ownership, Debt and Board Composition on Mexican Firms Performance

This study examines the relationship between ownership structure and performance of public firms in Mexico, considering debt and the structure of the board of directors as contextual and institutional factors. This research seeks to explain the mixed results about the relationship of ownership and performance presented by other relevant studies in family and non-family businesses, mainly in emerging countries. The results confirm the positive association between family ownership concentration and performance, calculated by Tobin’s Q, showing how the participation of inside shareholders on the board and a low debt level contribute to higher performance. However, the association of these variables with performance shows a contrasting effect in the case of family as compared to non-family businesses. The particular corporate legal context in Mexico could be highlighted as one of the main reasons for these results.

Incentives or Standards: What Determines Accounting Quality Changes around IFRS Adoption?

We examine the impact of managerial financial reporting incentives on accounting quality changes around International Financial Reporting Standards (IFRS) adoption. A novel feature of our single-country setting based on Germany is that voluntary IFRS adoption was allowed and common before IFRS became mandatory. We exploit the revealed preferences in the choice to (not) adopt IFRS voluntarily to determine whether the management of individual firms had incentives to adopt IFRS. For comparability with previous studies, we assess accounting quality through multiple constructs such as earnings management, timely loss recognition, and value relevance. While most existing literature documents accounting quality improvements following IFRS adoption, we find that improvements are confined to firms with incentives to adopt, that is, voluntary adopters. We also find that firms that resist IFRS adoption have closer connections with banks and inside shareholders, consistent with lower incentives for more comprehensive accounting standards. The overall results indicate that reporting incentives dominate accounting standards in determining accounting quality. We conclude that it is unwarranted to infer from evidence on accounting quality changes around voluntary adoption that IFRS per se improves accounting quality.

Late Disclosure of Insider Trades: Who Does It and Why?

We attempt to understand the personal incentives that motivate corporate insiders to engage in unethical behavior such as delayed trade disclosure. Delayed disclosure affects corporate transparency and other shareholders in the firm potentially suffer investment losses because they are unaware of insiders’ activities. Using archival data from the 300 largest Australian firms between 2007 and 2011, the results show that risk factors such as insider age and tenure and wealth effects in the form of insider shareholdings affect the likelihood of delayed reporting. Governance positions such as committee membership mitigate this behavior. Our study highlights the importance of considering individual insider’s wealth and risk factors. The self-monitoring role of governance positions is also indicative of the effectiveness of internal corporate governance in the prevention of illegal insider behavior.