Shareholder Ownership Research Articles

The impact of ownership structure and family board domination on voluntary disclosure for Jordanian listed companies

This study investigates the impact of ownership structure and family board domination on voluntary disclosure for Jordanian listed companies. Ownership structure is characterised by government ownership, outside ownership, managerial ownership and number of shareholders. This study is based on a cross-sectional examination of the effect of corporate ownership structure and family domination on voluntary disclosure after controlling other variables for 57 non-financial Jordanian companies listed on the Amman Stock Exchange. The multiple regression results show that the extent of voluntary disclosure is positively associated with government ownership and negatively associated with the proportion of shares held by management. Furthermore, we show that family domination is a significant factor in explaining variations in voluntary disclosure. We conclude that government ownership can help to promote transparency, but it has not yet eliminated the influence of management and the family control of boards on disclosure. However, outside ownership and number of shareholders are not associated with voluntary disclosure.

Introduction of Shareholder-Friendly Behaviors After Governance Reform in Korean Firms: Is It a Proactive Response?

ABSTRACTSince the currency crisis in 1997, there have been many efforts for corporate governance reform in Asia and Korea. In this article, we intend to analyze the effect of the reform process in Korean companies. We show that the decrease in controlling shareholder ownership, the increase in the ownership rates of institutional investors and foreign investors, and the increased ratio of outside directors are related to the increase in stock repurchase amount and dividend payout. The increase in stock repurchase and dividend payout represents the shareholder-friendly behaviors of Korean firms after the crisis. It is shown that governance reform efforts in Korea have at least increased the shareholder-friendly behaviors of the companies. However, after the crisis, Korean firms increased cash holdings by reducing research and development (R&D) investments and utilized increased cash holdings to pay stock repurchase and dividends. This raises the question of whether shareholder-friendly management resulting from governance reform was only an institutional isomorphism from responding passively to outside pressure.

Are controlling shareholders extracting private benefits from European public acquisitions?

Purpose – The purpose of this paper is to examine the incentives of controlling shareholders in the market for corporate control. The author investigates the takeover premiums paid by a sample of European acquiring firms with voting rights structures that are highly concentrated. The results show a positive relationship between takeover premiums and the bidder’s concentration of both voting rights and excess voting rights over cash-flow rights. The author argues that with higher levels of entrenchment, takeover premiums reflect the private benefits of control which controlling shareholders in bidding firms seek to extract from a public transaction. Design/methodology/approach – This paper uses cross-sectional regression analyses to examine the relationship between takeover premiums and the extent to which bidding firm shareholders exert control as well as the arrangement which underlie this. The sample is composed by 210 deals. The data are collected from various databases (Thomson Financial’s Mergers and Acquisition; Faccio and Lang’s (2002); Datastream/Worldscope, LexisNexis). Findings – The premium paid in European M&A transactions is affected by the level of ownership exerted by the controlling shareholder. The results show premiums are positively and significantly associated with higher levels of voting rights, as well as, the level of separation of ownership and control when controlling shareholder ownership is low. Pyramiding structure seems to be the means of separation the most associated with takeover premiums. Research limitations/implications – This paper can be improved by other specifications. First, it would be interesting to analyze premiums paid by firms with dispersed ownership structure and to compare these premiums with those paid by firms with controlling shareholders. Second, the author suggests to examine whether a controlling shareholder occupy the seat of a CEO or a chairman. In these cases, the author assumes that the controlling shareholder can benefit from more discretion and can extract more private benefits. Third, the author suggests extending the sample period to 2007 at least to include the sixth wave. This wave was even more significant than the high-tech wave and has not been studied much. In these cases, the author assumes that the controlling shareholder can benefit from more discretion and can extract more private benefits. Originality/value – Previous studies show that the premium reflects the private benefits of control in privately negotiated transactions (mainly block transactions). In the present study, the author shows that the premium can also reflect private benefits in public merger transactions.

Tough Love: The Effect of Contract Design on Firm Efficiency

I investigate whether restrictive loan covenants disrupt or improve firm operating performance. Using an instrumental variables approach to address the endogenous relationship between covenant strictness and firms' efficiency, I find stricter loan covenants cause an increase in profitability and a reduction in operating cost. Stricter covenants improve performance only in firms with poor governance: those without large shareholder ownership, with weaker shareholder rights, facing softer competition in their product market, or with inside director dominated boards. The evidence is consistent with the view that the design of debt contracts can mitigate agency costs in firms that lack alternative governance mechanisms.

Control–ownership Disparity and Business Performance: A Study of Korean Firms

In Korea, there is a large disparity between voting and cash flow rights (control–ownership disparity). Using firm‐level data from Korea for the 2004–2009 period, the present study examines whether control–ownership disparity influenced firm performance. Specifically, the study analyzes whether the effects of control–ownership disparity on firm performance vary according to the type of firm (publicly traded vs private firms) and to the major shareholder's ownership stake (greater than 50 percent vs less than or equal to 50 percent). According to the results, the negative effect of control–ownership disparity on firm performance was weaker for publicly traded firms, and control–ownership disparity had a negative effect on firm performance when the major shareholder's ownership stake exceeded 50 percent.

The relationship between corporate governance and community engagement: Evidence from the Australian mining companies

We investigate whether effective corporate governance mechanisms help improve firm-level community engagement activities, using a sample of Australian mining companies for the period 2005–2013. We firstly document that effective board structure and functionality positively contribute to mining companies׳ community engagement. Secondly, we analyze the components of community engagement and examine each of them individually with governance mechanisms. The results show that the effects on engagement with indigenous people and indirect economic are mostly significant and profound. Thirdly, we hypothesize that firm performance proxied by dividend yield can moderate the relationship between governance mechanisms and community engagement. Our empirical results support this hypothesis, suggesting that dividend yield mitigates the negative effects of the largest shareholders ownership and strengthens the positive effects of board size, board meeting and the presence of CSR committee on community engagement level.

Corporate governance: institutional arrangement or market choice?

Purpose – The purpose of this paper is to investigate the relationship between corporate governance mechanism and firm value of the listed companies in China. Does the better corporate governance lead to the higher firm value? Or does the higher firm value make it easy to choose a better governance mechanism? Or they affect each other? In other words, this paper tries to answer whether the corporate governance mechanism is only decided by institutional arrangement, or by market choice according to firm value or performance or by the interaction of institutional arrangement and market choice? It tries to answer whether institutional arrangement maximizes the firm value, or an invisible hand pushes them to arrive at its maximum. Design/methodology/approach – This paper establishes an analytic framework of simultaneous equations based on causality, which includes five endogenous variables: ownership of larger shareholders, managerial ownership, director compensation, debt financing and firm value. It adopts 1,644 data samples from 274 Chinese listed companies in Shanghai and Shenzhen Stock Exchange during 2007- 2012 after the non-tradable shares reform. Ordinary least squares (OLS) estimation of single equation, 2SLS and 3SLS estimation of simultaneous equations are respectively done to show the differences of these three kinds of estimations. Findings – The empirical results show that differences exist among OLS, 2SLS and 3SLS estimation. Finally, 3SLS estimation should be adopted because the OLS and 2SLS estimation are biased. There are endogenous relationships between corporate governance mechanism and firm value. Through the 3SLS estimation, it is found that first, ownership concentration and firm value affect each other positively. Second, managerial ownership and firm value affect each other positively; third, director compensation and firm value affect each other negatively, while director compensation and firm performance affect each other positively. Finally, debt financing level and firm value are negatively related to each other. Practical implications – It means that ownership of large shareholders, managerial ownership, director compensation and debt financing in the Chinese listed companies are found to have a root in the interaction between institutional arrangement and market choice. It is also found that adverse selection occurs when creditors loan to the listed companies. Managerial compensation is positively related to accounting profit, but it is negatively related to firm value because managers increase profit due by earning management. This could only increase the accounting profits and obtain huge cash compensation, but not increase firm value and even harm the interests of shareholders. Originality/value – This paper not only shows the difference between OLS and 2SLS estimation but also compares the estimation of 2SLS and 3SLS in terms of empirical methods. It gives answers to the following questions: whether the relationship is one-way causality or bilateral causality between ownership concentration, managerial ownership, director compensation and firm value; whether governance mechanism affects firm value by institutional arrangement, or market drives both of them to strike a balance by an invisible hand. In other words, does it make them arrive at equilibrium through the competitive selection process when shareholders, directors, managers and creditors attempt to maximize themselves of their interests?

Information effect of involuntary delisting and informed trading

This paper analyzes the information effect of involuntary delisting and the possibility of informed trading in the Korean stock market. We find that the abnormal return is between 80% and 90% due to involuntary delisting in the Korean market, where liquidity all but disappears as a result of delisting. Prior to delisting, however, domestic individual investors are net buyers of delisted firms while both domestic institutional investors and foreign investors are net sellers. On the other hand, the share ownership of large shareholders, on average, declines by more than 30% over the course of two years prior to involuntary delisting. Using delisting probability model, we find that the change in the share ownership of large shareholders is a significant predictor of delisting while that of domestic institutional investors and foreign investors is not. Our findings suggest that large shareholders reduce their share ownership in anticipation of delisting and that there is a wealth transfer from individual investors to large shareholders surrounding involuntary delisting in markets where the separation between ownership and control is weak and the participation of retail investors is large.

The Composition and Effectiveness of Audit Committees in the Presence of Large Controlling Shareholders

The authors' study of audit committees in 450 large East Asian companies (150 each in Hong Kong, Singapore, and Malaysia) finds a strong positive correlation between the “cash flow” ownership (as opposed to just the voting rights) of large shareholders and the percentage of independent audit committee members. The study also reports a strong positive correlation between the “cash flow” ownership of large shareholders and the percentage of audit committee members with financial expertise and experience.This finding is consistent with the hypothesis that larger cash flow ownership provides large shareholders with strong incentives for more effective governance. Conversely, the lower percentages of independent or professional audit directors at companies with large disparities between cash ownership and voting rights is consistent with the authors' hypothesis that entrenched large shareholders prefer inferior governance structures that pose fewer obstacles to their tendency to exploit the wealth of minority shareholders.Furthermore, the authors find higher valuations (market‐to‐book ratios) for companies with audit committees that consist entirely of independent directors and have larger percentage of members with financial expertise. And when viewed as a whole, the authors' findings provide support for the argument that ownership structure affects the composition of audit committees, and that independent and professional audit committees can help increase firm value.

Corporate Governance Mechanisms and Auditor Choice: Evidence from China

This paper provides empirical evidence on the association between corporate governance mechanisms and thechoice of high-quality and low-quality auditors (hereafter “auditor choice”) based on firm’s data from Chineselisted firms between 2007 and 2012. Consistent with most literature, this paper adopts Big 4 auditors as theproxy for high-audit quality. Our findings indicate that certain corporate governance factors, ownership of thelargest shareholders, the aggregate of ownership of other large shareholders, percentage of independent directorsin the board, dual-list status and marketization, have significant positive influence on auditor choice. Morespecifically, ownership of the largest shareholders exhibits a U-shape relationship for the auditor choice: in thelower ownership, a Chinese listed firm would prefer a low-quality auditor, while up to the threshold level ofownership, a Chinese listed firm would prefer a high-quality auditor. This paper also explains several possiblereasons why Big 4 auditors are still uncommon in Chinese stock market.

Investigating the Relationship between Corporate Governance Ranking and Earnings Management in Companies Listed in Tehran Stock Exchange

Joint stock companies play a major role in the economy and their success depends on willingness of investors and creditors to invest in these companies. Managers’ tendency to apply earnings management and abusing it which leads to providing false information can seriously destroy the trust of shareholders and cause thousands of shareholders to be harmed and run away from the stock market. Hence, due to the importance of keeping shareholders, the present paper seeks ways based on which financiers are assured that they will get good returns on their investment in the company. Shareholders play an essential role in the system of corporate governance, because they are the suppliers of companies’ capital and maintaining their trust is of utmost importance. Among the principles of corporate governance whose impact on earnings management is investigated by the present study, it can be pointed to institutional ownership of major shareholders and the ratio of non-executive directors to total directors. In this study, discretionary accruals using the modified Jones model has been applied as an index for determining earnings management. In this regard, the information of 98 companies during 20052011 has been used. To rate the mechanisms of corporate governance, TOPSIS ranking method which is one of the MCDM approaches has been used. After ranking, companies were divided into two groups including high-rank and low-rank companies. According to the results of this study, less earnings management is observed in companies with high rates of corporate governance; namely, the lower the rate of corporate governance is, the higher the earnings management will be. In the companies with high-rate corporate governance, due to the increased managerial control (earnings management) and transparency of financial information, the trust of shareholders and the amount of investment increase.

Corporate governance, resources, FDI commitment and firm performance

Purpose – This study aims to explore the effects of corporate governance structure and resources on foreign direct investment (FDI) commitment and firm performance. Design/methodology/approach – The data are collected from high-tech firms listed by the Taiwan Stock Exchange. All selected 137 firms have complete FDI and other required data during 2007-2009. The mean values of the variables during the three-year period were used for analysis. Findings – The results indicate that both chief executive officer (CEO) duality and government shareholding affect a firm’s FDI; and the higher the management shareholding ratio, the lower the return on equity. Moreover, a large ownership of substantial shareholders can enhance a firm’s performance; and higher institutional ownership can lead to higher firm performance. Research limitations/implications – This study analyses the limited data from 137 high-tech firms in Taiwan during the three-year period of 2007-2009. Further analyses of other industries, countries and time periods are needed to generalize the conclusions. Practical implications – A firm with CEO duality should increase the ratio of government holding to mitigate the influence of CEO on FDI decisions. When a firm’s performance is poor, the ratio of managerial holdings should be reduced; conversely, the firm could attract more holdings from domestic securities and funds to improve performance. Originality/value – This study provides guidelines for shareholders to analyze governance structure and formulate their investment strategies. Corporate policymakers may use these as the principles for designing a corporate governance structure that could engender optimal firm performance.

Ownership Structure And Managerial Behavior To Beat Market Expectation In Korea

This paper examines whether firms ownership structure in Korea changes managers' behavior to meet or beat market expectations. We examine whether managers manage earnings upward and/or guide analyst expectations downward to avoid negative earnings surprises. By using companies listed on the Korean Stock Exchange, we find that the inclusion of a higher proportion of foreign ownership significantly increases the probability to meet or beat market expectations. The finding suggests that the firms with higher foreign ownership try to satisfy their foreign investors who emphasize current profits by boosting the stock price. We also find that managers are less likely to avoid negative earnings surprises as large shareholders ownership increases. The results imply that large shareholders play an internal monitoring role for managers' earnings and/or expectations management. In addition, firms with large shareholders ownership rely less on income-increasing discretionary accruals. Our findings supports the convergence-of-interest hypothesis that as the controlling shareholders ownership level increases, the interest of the controlling shareholder decreases managers opportunistic behavior to manage earnings.

The Relationship between Corporate Governance and Dividend Policy

Dividend is one that has been in open interest of shareholders and financial investigators, that the dividend decisions as a strategic policy on Corporate Governanceare affected by Corporate Governance mechanisms. purpose of this study was to investigate the impact of corporate governance mechanisms such as the institutional shareholders and members of the Board of Directors on dividend policy in listed companies on the Stock Exchange of Tehran. Our sample consists of 108 companies listed on the Stock Exchange during the period 86 to 90. In this regard, information and documents in the library of Stock Exchange , documents and financial reports of listed companies; information of accounting software The New deal ,and Site Info www.Rdis.ir is used. Data and methods are sectional Statistical and results of linear regression was used to test hypotheses 5% error indicates that a variable percentage ownership of institutional shareholders with dividend ratio is significant addition, the percentage of board members and dividend ratio also showed a significant relationship was not found.

Ownership structure, ongoing related party transactions and corporate performance: evidence from Chinese listed firms

This paper is to review the association of the magnitudes of ongoing related party transactions with the largest shareholders (ORPTs) on the ownership structure and their impact on corporate performance of Chinese listed firms after substantial reform of Chinese corporate governance framework in 2005. Previous literature found that the largest shareholders used related party transactions to tunnel or prop up their controlled firms for their own benefits. Based on a sample of 6657 firm-year observations from 2007 to 2011, the authors find that there is still a positive association between ownership of the largest shareholders and ORPTs, but no significant association between ORPTs and corporate performance, and therefore, there is no evidence that the largest shareholders use ORPTs to tunnel or prop-up their listed firms. This study also finds that there is an endogenous effect of ownership of the largest shareholders on ORPTs, and the authors suggest that the largest shareholders still have to retain the control of Chinese listed firms because in economic reality, those listed firms are still an integral part of business operations of the largest shareholders (business groups), i.e. alignment effect.

Manager Characteristics and the Choice of Firm “Low Leverage”: Evidence from China

In this paper, we analyze the low-leverage phenomenon of firms and examine the question of why some firms have low leverage in China. We find Low-leverage firms are smaller, have higher profitability and hold more cash balances than control firms chosen by industry and size. Our evidence supports the hypothesis that these firms are operated by risk-aversion manager. Firms with older Chief Executive Officer (CEO) and higher first shareholder ownership are more likely to have low debt. Also, CEO gender is one of the determinants of low-leverage choice.

The Impact of Ownership Concentration on Firm Value. Empirical Study of the Bucharest Stock Exchange Listed Companies

The aim of this study consists in providing the first empirical evidence for the companies listed in Romania regarding the influence of ownership concentration on firm value. The empirical research was employed for a sample of companies listed on the Bucharest Stock Exchange (BSE), over the period 2007-2011, being estimated multivariate regression models for panel data, unbalanced, with fixed effects. The value of the companies was measured out by the instrumentality of Tobin's Q ratio, however adjusted with the purpose of taking into account the industry membership diversity of the selected sample. We considered distinctly the ownership of the first, the second, and the third largest shareholder, as well the sum of holdings of the two largest shareholders and the sum of holdings of the three largest shareholders. Therefore, the results sustain a lack of influence on firm value exhibited by the first largest shareholder, while the second largest shareholder positively influences firm value. By considering the ownership of the third largest shareholder we identified a positive influence, but down to a level of holdings of 13.08 percent, thereupon the influence becomes negative. Thereby, beyond the identified threshold we could perceive the reduction of the third largest shareholder’ concern regarding the process of directors’ monitoring, thus following the own aims’ achievement. Further, from the ownership concentration perspective only the sum of holdings of the three largest shareholders positively influences firm value. However, there was not identified any statistically significant relationship between the sum of holdings of the two largest shareholders and firm value. Accordingly, the results are influenced by the context of an underdeveloped Romanian capital market within the first largest shareholder ownership discourages the occurrence of another investors holding significant stakes.

Shareholder short-termism in the UK: The kay review and the potential role of corporate law

This paper examines the notion of short-termism and assesses the potential impact of short-termist shareholder pressures on corporate governance in light of available empirical evidence on the effects of institutional shareholder ownership on corporate performance. Its main aim is to evaluate the adequacy of the recommendations included in the influential Kay Report and to assess the legal efficacy of the regulatory tools advocated by Kay. It is argued that although most of the Report’s recommendations are likely to alleviate the consequences of short-termism, the Report does not go far enough to ensure a definite change of culture and practice in equity markets. Therefore, further reforms are necessary in the area. In particular, it is expedient to robustly reform the structure of executive remuneration, facilitate a dialogue between companies and long-term investors, and reform shareholder voting rights to deter short-termist behavior and reward long-term investors

Executive Remuneration and the Payout Decision

We analyze the payout channel choice of listed UK firms and examine whether the choice between dividends, share repurchases, a combination of payout channels, or complete earnings retention is affected by investor sentiment, taxation, major shareholder ownership, and in particular the CEO’s compensation package. The payout choice can have an immediate effect on the value of the CEO’s stock options and restricted stock, whereby anticipated dividends drive down the value of her equity-based pay if it is not dividend-protected whereas share repurchases may have a positive impact. We use a quantile regression analysis to examine various payout scenarios as well as a nested logit model which studies payout choice conditional on changing payout levels. We find that it is the CEO’s personal wealth as reflected by her compensation package rather than shareholder preferences which has the strongest impact on the firm’s payout policy.

Outward foreign direct investment of publicly listed firms from China: A corporate governance perspective

This study examines the influence of key corporate governance factors on the internationalization decisions of emerging economy (EE) firms. By integrating the resource-based view and agency theory, it investigates the effects of controlling owner identity, non-controlling shareholder ownership, and the interactions of these with CEO power, in order to reveal their individual and joint effects on the outward foreign direct investment (OFDI) propensity of EE firms. This empirical study of 224 Chinese publicly listed firms found positive effects of ownership of domestic institutional investors and foreign corporations on the OFDI propensity of the firms, which were moderated by the power of the CEOs in these firms.