Large Shareholders Research Articles

Multiple large shareholders and ESG performance: Evidence from the cost‐sharing and resource‐provision view

AbstractThis paper investigates how multiple large shareholders (MLS) influence firms' environmental, social and governance (ESG) performance. Based on Chinese data, we find that firms with MLS perform better on ESG compared to firms with a single blockholder. This impact is stronger in firms with a more balanced ownership structure and in the pandemic period, which supports the cost‐sharing of other large shareholders in motivating ESG activities. Such impact is also intensified in firms with different types of large shareholders and with foreign shareholders, aligning the resource provision mechanism. This study reveals a novel role of other large shareholders in driving ESG.

أثر تعدد ملكية كبار المساهمين على الأداء المالي: دراسة على الشركات المدرجة في سوق الأسهم السعودية

This study aims to investigate the impact of large shareholders' ownership on the financial performance of listed companies in the Saudi market. The study was conducted on a sample of 158 listed companies over the period 2016-2022, using the panel data method. While the study documents that there is a significant positive relationship between the size of large shareholders’ ownership and firm’s financial performance, this relationship turns to be negative if the large shareholders own large stakes in more than one firms in the market. Further investigation reveals that the negative relation between a firm’s financial performance and the ownership of large shareholders is attributed to those shareholders who own a large stake in the same industry of the focal firm but not those who have large stakes in other firms in different industry. The findings of the study provide practical implications for policy makers. Firms; board, and investors in the financial markets. Additionally, this study contributes to the existing literature by showing there is heterogeneity in the effect of large shareholders’ ownership on firms’ policies.

Facilitator or figurehead? The impact of academician shareholder on corporate innovation: Evidence from China

Investment by academicians with resource advantages can serve as a vital channel for promoting innovation. In this study, we investigate whether and how academician shareholders who are esteemed fellows or candidates of the Chinese Academy of Sciences and the Chinese Academy of Engineering impact corporate innovation. Using a sample from China, we document a positive association between academician shareholders and corporate innovation. Our channel analysis reveals four potential channels through which academician shareholders promote corporate innovation: innovative human capital, investor protection, top management team attention to innovation and reduction in innovation uncertainty. Moreover, in line with the resource-based view and incomplete contract theory, our findings indicate that the positive association is more pronounced in firms with directors appointed by academician shareholders, without state ownership, and with multiple large shareholders. Finally, our findings indicate that academician shareholders can enhance open innovation, attract government subsidies, shorten the time it takes for corporate patent applications to be granted, and improve firm performance.

The Impact of Multiple Large Shareholders' Coexistence on Firms' Green Technology Innovation

The Impact of Multiple Large Shareholders' Coexistence on Firms' Green Technology Innovation

The Heterogenous causality of repurchases: Analysis from the aspect of share collateralization

We explore the unique heterogeneity feature of the Chinese market to examine the relationship between firms' share collateralization by its largest shareholders and corporate repurchases. Furthermore, we analyze the divergent incentives resulting in different consequences for the performance of private firms and state-owned enterprises (SOEs). The policy effect of an amendment to the Company Law of the People's Republic of China is studied using the difference-in-differences method. The measure is changed to ensure the reliability and robustness of the causality results between collateralization and repurchases. The results show that higher collateralization increases the likelihood of firms' share repurchases. The repurchase incentive of firm performance diverges between private firms and SOEs. Some SOEs even attempt to support the policy and blindly herd to repurchase shares; however, when SOEs are assured of their operational efficiency, repurchases increase their profitability. Private firms use repurchases as a share price stabilizer to protect the interests of their large shareholders rather than to benefit minority and small shareholders. These results provide policy feedback and demonstrate the complexity of controlling for corporate incentives when market interests are highly mixed.

Insurance participation, equity pledge and stock price crash risk: Evidence from China.

This paper analyzes the causes of equity pledge, external conduction mechanisms, and economic consequences from the perspective of insurance participation by integrating insurance participation, equity pledge, and stock price crash risk into a unified framework. An empirical analysis of sample data from listed companies in Shanghai and Shenzhen between 2007-2021, indicates that equity pledge reduces the risk of collapse as companies hedge the risk induced by the equity pledge. Further research has revealed that insurance participation can mitigate stock price crash risk brought by equity pledge through a regulatory effect, which is more pronounced for private companies and those with a high shareholding ratio, and companies in manufacturing industry. This is because private companies have a higher demand for capital as their property rights are not state-owned, the degree of separation of powers and agency conflicts is greater in companies held by large shareholders, manufacturing companies usually have stable earnings and cash flow performance, and the financial support provided by insurers for equity pledges at risk can effectively reduce the risk of their collapse.

Disclosure and Dynamic Risk Sharing with a Large Shareholder

ABSTRACT We study the effects of disclosure in a dynamic market with imperfect competition. The supply of an asset is determined by a large shareholder with price impact, who trades slowly to diversify away from concentrated ownership. Small investors provide capital and thus risk-bearing capacity to the market. Although it is well known that disclosure impedes risk sharing by shifting risk before future trading opportunities, we show that disclosure, at the same time, can enhance risk sharing by promoting more trades. Resolving this tradeoff, an interior level of disclosure quality maximizes the small investors’ surplus as well as the total surplus, but minimizes the large shareholder’s surplus. Further, efficient disclosure policies feature increasing quality over time. JEL Classifications: D80; E21; G12; L13; M41.

Network Infrastructure Development and Large Shareholder Expropriation: A Quasi-Natural Experiment from the 'Broadband China' Strategy

Network Infrastructure Development and Large Shareholder Expropriation: A Quasi-Natural Experiment from the 'Broadband China' Strategy

Interdependence of heterogeneous blockholders: Evidence from China

The co-holding of interdependent pairs of heterogeneous blocks can provide firms with stable financial support. The interdependence of heterogeneous blockholders’ investment decision has become an important frontier in the financial literature on large shareholders. In this paper, we study the interdependence of heterogeneous blocks in China. We find significant positive interdependence among blockholders of the same type. In heterogeneous block pairs, the financial–private pair shows positive interdependence. The findings are in contrast to those observed in the US. Under the mixed-ownership reform in China, our findings suggest the potential for cooperation among multiple blocks of the same type rather than between heterogeneous strategic partners.

Multiple large shareholders and pay-performance sensitivity: Evidence from China

This study investigates whether and how multiple large shareholders affect pay-performance sensitivity. Our findings suggest that multiple large shareholders can enhance pay-performance sensitivity by improving the efficacy of compensation committees and reducing inefficient investments. Further analysis reveals that this positive governance effect is more pronounced in firms with more severe agency problems, weaker external governance mechanisms, and higher accounting comparability. We also find that the impact of multiple large shareholders on pay-performance sensitivity is more significant in state-owned enterprises, where corporate governance is often deficient due to government’ multifaceted objectives and limited oversight of managers. Overall, this study contributes to existing literature by enriching the research on ownership structure and pay-performance sensitivity, and offering new insights into the governance dynamics associated with multiple large shareholders within the context of compensation contracting.

Does litigation contingency disclosure in corporate filings matter? Evidence from securities class action lawsuits

PurposeWe investigate the information content of legal contingency disclosures in corporate filings, specifically their usefulness in predicting settlement amounts and mitigation of market response to litigation resolution news.Design/methodology/approachUsing a hand-collected sample of disclosures for settled US securities class action lawsuits, we analyze the contents of the contingent liabilities disclosure before future settlements and classify them into two categories: “pessimistic” and “optimistic” disclosures. We examine whether the tone of disclosure is associated with litigation outcomes, such as settlement amounts and likelihood of incurring material losses, and its effect on market reaction to settlement announcements.FindingsDisclosures with optimistic views on lawsuits are settled for lower amounts, whereas those with more pessimistic views result in higher settlements. Furthermore, while, on average, investors react negatively to litigation resolutions, the market reaction is attenuated (exacerbated) when a prior legal liability disclosure was pessimistic (optimistic). Additionally, investors value disclosure consistency when a litigation outcome is aligned with its legal contingency disclosure. Finally, disclosure consistency is positively associated with managerial ownership as well as the largest shareholder ownership.Originality/valueThis study highlights that the overall tone in legal contingency disclosures is informative and has valuation implications for capital markets. It also highlights the benefits of consistent disclosure, i.e. litigation disclosure aligned with litigation outcomes, as it is viewed positively by investors.

Does the deleveraging policy exacerbate tunneling? Empirical evidence from China

ABSTRACT This study investigates the impact of the deleveraging policy on tunneling, using China’s A-share listed firms. The deleveraging policy exacerbates tunneling and the result is robust after a series of tests. Further investigations show that tunneling of listed companies by non-state-owned controlling shareholders is particularly significant and audit opinions fail to reflect and inhibit tunneling. A way for large shareholders’ tunneling under deleveraging is collusion with management.

Multiple Large Shareholders and ESG Performance: Evidence from Shareholder Friction

Sustainable corporate governance increasingly influences corporate strategy considerations. Effective governance ensures organizational sustainability, with ESG being a crucial component. Large shareholders, as direct stakeholders, have a key role in developing and implementing corporate ESG strategies. Using data on Chinese listed firms over the 2011–2022 period, we find that multiple large shareholders (MLS) depress company ESG performance, suggesting that MLS may lead to friction and high coordination costs. Interestingly, stronger controlling shareholders mitigate this negative impact, particularly when they are state-owned. Our analysis shows that relatively equal power among MLS exacerbates friction, resulting in unstable executive teams and higher internal pay gaps, which lower governance (G) and social (S) scores. However, the presence of foreign and institutional investors among the large shareholders can alleviate these issues. The negative effect of MLS on ESG is significant in firms operating in clean industries, those with low analyst attention, or those not part of the “Stock Connect Scheme”. This study highlights the drawbacks of MLS in sustainable corporate governance from an ESG perspective.

Non-controlling large shareholders and dynamic capital structure adjustment in China.

Using the sample of Chinese A-share listed firms from 2010 to 2020, this study examines the impact of non-controlling large shareholders (NCLSs) on corporate capital structure adjustment. The results show that NCLSs significantly increase the dynamic capital structure adjustment speed and reduce capital structure deviation. NCLSs have an asymmetric influence on capital structure adjustment speed for different deviation directions, i.e. compared to the speed of upward adjustment after a downward deviation of the capital structure, the effect of NCLSs on the speed of downward adjustment of the capital structure after an upward deviation is stronger. Whether in state-owned enterprises (SOEs) or non-state-owned enterprises (NSOEs), NCLSs significantly increase the dynamic capital structure adjustment speed. However, compared with SOEs, NCLSs in NSOEs have a more significant positive impact on the dynamic capital structure adjustment speed. The mechanism analysis suggests that reducing agency costs and mitigating financing constraints serve as the important channels through which NCLSs influence the dynamic adjustment of capital structure. This paper not only enriches and improves the theoretical basis of dynamic capital structure adjustment, but also helps to deepen the understanding of dynamic capital structure adjustment of Chinese listed firms.

MD&A readability and bank loan contracting: evidence from China

ABSTRACT We investigate whether and how the textual characteristics of management discussion and analysis (MD&A) can affect bank loan contracting using a sample of 31,141 loan-firm-year observations in China. We document a strong negative relationship between a firm’s MD&A readability and its cost of borrowing, in line with the argument that banks incorporate borrowers’ information risk into pricing. Cross-sectional analyses suggest that the relation between MD&A readability and loan contract terms is less pronounced when borrowing firms are state-owned or have political connections, when firms are located in areas with more developed credit markets, and when lending banks are large shareholders.

Ownership Structure and Firm Performance. A Panel Regression Study from Poland

This paper explores the relationship between ownership structure and firm performance, using the framework of agency theory. Given a sample of 126 Polish non-financial firms listed on the Warsaw Stock Exchange between 2016-2021, we applied fixed and random effects panel regressions with robust standard errors, tested for specification, endogeneity, cross-sectional heteroskedasticity, and serial autocorrelation. Our models identify several significant associations of adopted ownership structures with firm performance measured by accounting and market-based measures. We find that ownership concentration by the largest shareholder is negatively related to enterprise market-measured performance. Additionally, our results indicate the significance of shareholder heterogeneity.

Multiple large shareholders and analyst activities

This paper examines whether analysts' decisions to follow or visit a firm are affected by a specific governance structure—multiple large shareholders (MLS). Using a sample of 3369 Chinese firms listed on the Shanghai and Shenzhen stock markets, we compare analyst activities for MLS firms with those for single-large-shareholder firms and find that analysts are more willing to cover/visit firms with MLS. We then empirically identify that MLS affects analyst activities through corporate governance, information environment, and firm's value, supporting the monitoring role of other blockholders on the controlling shareholder. Further analyses show that the impact of MLS on analyst activities is more prominent when other large shareholders have more power relative to the controlling shareholder, when MLS represent different types of ownership (state and nonstate), and when at least one is foreign. We also find that firms with MLS, by attracting analyst following or site visits, tend to have more accurate forecasts and more informative analyst reports. Our results imply that analysts not only view MLS as better governance but also acquire more information from firms with MLS.

Foundation-controlled firms and CEO compensation

We explore the effects of foundation control on CEO incentive contracts. Unlike other blockholders, foundations do not consume the entirety of their cash flow rights, which attenuates the incentives of the controlling foundations to directly monitor the management. We present a simple model of moral hazard which predicts that foundation-controlled (FC) firms will resort to executive compensation as an alternative disciplining mechanism. Using a sample of listed Swedish family firms over the period of 2001–2014, we find that CEOs in FC firms are awarded more stock options compared to their peers in non-FC firms. The performance sensitivity of their option portfolios is also higher, but we do not find this to be the case for stock grants. Lastly, there is no conclusive evidence of differences in the levels of cash compensation. Our findings support the view that incentive contracts can substitute for large shareholder monitoring.

Foreign corporations as large shareholders

Foreign corporations as large shareholders

Revisiting corporate governance mechanisms and real earnings management activities in emerging economies

PurposeThis study aims to investigate the effects of main corporate governance (CG) mechanisms used in Iran on the relationship between managers’ rewards and real earnings management activities.Design/methodology/approachPanel data analysis is performed on 101 companies listed on the Tehran Stock Exchange during the past seven years (from 2015 to 2021).FindingsThe percentage of non-executive members of the company’s board of directors and the percentage of acquisition of the company’s largest shareholders have a negative significant effect on the relationship between abnormal operating cash flows and managers’ remuneration. Moreover, the separation of the CEO from the chairman and vice chairman of the board has also a negative significant effect on this relationship. However, concentration of ownership does not have a significant effect on the relationship between abnormal operating cash flows and managers’ rewards.Practical implicationsThe study provides policymakers and governing bodies with a better understanding of the effects of the percentage of non-executive board members, concentration of ownership, percentage of major shareholders and duality of the role of CEO (or president) from the chairman and vice chairman of the board on the relationship between managers’ rewards and earnings management.Originality/valuePrevious studies focus mainly on accrual-based earnings management. This study investigates real earnings management and provides empirical evidence on the most effective and significant CG dimensions in Iran. It embraces the fact that CG may have the same principal concept in different markets, but the mechanisms may vary significantly, thus opening the door for more comparative future research.