Presence Of Blockholders Research Articles

Information asymmetry and investment efficiency: the role of blockholders

PurposeThis study aims to examine the extent to which information asymmetry affects investment efficiency and whether the presence of blockholders moderate this relationship.Design/methodology/approachWe employ the data of firms listed on the Malaysian stock exchange for the period 2010–2018, to compose our sample. Our final sample includes the 100 largest non-financial firms based on market capitalization. Collectively, these 100 companies contribute 84.2% to the total market capitalization (MYR 1,730bn) which is representative of the whole market. The ordinary least squares regressions were used as the main estimation technique. The system generalized method of moments, two-stage least squares and propensity score matching were also used, to address potential endogeneity concerns.FindingsWe document a positively significant association of information asymmetry with investment inefficiency. These results imply that information asymmetry reduces investment efficiency and enhances sub-optimal investments. We also document that blockholders negatively moderate the relationship of information asymmetry with investment inefficiency. Further analyses show that investment inefficiency is higher in low-growth firms than in high-growth firms because of higher information asymmetry.Research limitations/implicationsWe focus on Malaysia, which is a predominantly common-law Anglo-Saxon country. Graff (2008) documented that the investors are treated differently across legal systems and there are differences between the continental European and Anglo-Saxon countries. La Porta et al. (1999) documented that investors tend to have more legal protection in Anglo-Saxon countries. Therefore, our results may not be generalized to countries with different legal systems.Practical implicationsAn important implication of our findings is that stakeholders may encourage the presence of blockholders and give them a voice to weaken the positive relationship between information asymmetry and investment inefficiency.Originality/valueThis study contributes to the contingency literature by investigating the moderating effect of an important governance mechanism, i.e. the presence of blockholders on information asymmetry-investment efficiency nexus. Despite being important, this moderating effect has been largely overlooked in the literature. Our study contributes by providing an understanding of how blockholders can influence investment decisions, offering insights for academics, investors and policymakers focused on improving the efficacy of investment decisions and governance structure.

Multiple blockholders and governance through voice: evidence from blockholder board representation

ABSTRACT This study examines the efficacy of governance through voice in an emerging market where managers have limited financial incentives to heed stock price feedback and align their actions with shareholder interests. Using hand-collected data on blockholders serving on corporate boards for all non-financial firms publicly listed in Malaysia from 2002 to 2019, we uncover a U-shaped relationship between blockholder board representation and firm value. Below a certain threshold, blockholder board representation is negatively associated with firm value, reflecting market concerns over these directors’ ability to mitigate agency problems. However, once blockholder presence on the board exceeds this threshold, we observe a positive impact on firm value. This improvement is attributed to the enhanced governance through voice provided by active blockholder-directors.

The impact of director blockholders on abnormal accruals and inventory

AbstractThis paper empirically analyzes the impact that director blockholders have on earnings management. We argue that having a blockholder serve on the board of directors will improve a firm's corporate governance due to having both the ability and incentive to correct problems in a firm. We provide evidence that the presence of blockholders on the board of directors lowers the amount of abnormal working capital accruals caused by CEO incentives. We show that this is primarily done by reducing abnormal increases in inventory. This finding is most robust among busy boards, providing evidence that director blockholders can provide strong corporate governance in the absence of an attentive board of directors. Our findings suggest that director blockholders can provide an important role for firms and may prevent managers from taking value‐destroying actions.

Blockholders and firm value: Evidence from Brazil

This research analyzes the relationship between the presence of blockholders and the value of Brazilian firms. Our analysis comprises all non-financial listed firms in Brazil with data available in the period 2010-2019 (i.e., 1,091 firm-year observations). We estimate Ordinary Least Squares (OLS) models with firm fixed effects and use Propensity Score Matching (PSM) to pair sub-samples and mitigate selection bias concerns. Our results suggest a negative association between Tobin's Q and the presence of blockholders. Our findings contradict previous studies using samples of international firms but corroborate previous studies using Brazilian firms. We also find that companies with blockholders of the family-type have Tobin's Q lower than the other types.

Ownership structure and financial constraints – Evidence from an emerging market

PurposeThe purpose of this research is to examine the impact of corporate governance proxies by ownership structure on financial constraints for a sample of 215 non-financial Pakistan Stock Exchange (PSX) listed firms between 2010 and 2018.Design/methodology/approachThe dynamic generalized method of moments (GMM) estimator is used to determine the influence of ownership structure on financial constraints. The ownership structure of sample enterprises is measured using seven variables: managerial, family, institutional, foreign, associated, presence of block holder, and concentrated ownership, while financial limitations are determined using the KZ Index. The WW Index is used to assess the robustness of the results. In addition, for robustness, we also used OLS and FE.FindingsBased on the system GMM results, it was discovered that firm ownership structure has a significant impact on the likelihood of financial constraints. In the case of Pakistan, the results show that institutional ownership, foreign ownership, and the presence of a block holder in the ownership structure have a significant negative impact on financial constraints, whereas family ownership and ownership concentration have a significant positive impact. This finding remains true when financial constraints are measured using the WW Index.Practical implicationsThe findings of the study provide business managers and investors with more information regarding the relationship between corporate governance quality and the degree of financial constraint in Pakistani firms. Furthermore, this study contributes new information from emerging nations like Pakistan to the existing literature, which will help regulatory bodies and policymakers build long-term corporate governance solutions to manage financial constraints. It is well established that improving the quality of corporate governance practices improves capital market efficiency and lowers the likelihood of financial constraints.Originality/valueThe study adds to the body of existing work on corporate governance and the possibility of financial constraints, with a focus on Pakistan. The findings show that when projecting company financial constraints, regulators should pay special attention to the quality of corporate governance, specifically ownership structure.

The Determinants of Blockholder Presence: Evidence from Korea

The purpose of this study is to investigate the determinants of blockholder presence in the Korean stock market. This study examines previous theories and studies, points that previous studies did not examine, and proposes two hypotheses. To verify two hypotheses, fundamental data were collected from firms listed on Korea Exchange from 2005 to 2017. As explanatory variables, we use the factors and characteristics of the firms used in the previous studies. Logistic regression analysis was conducted to test the determinants of blockholder presence. We find that firm size is the most distinctive factor determining the presence of blockholder, and firm idiosyncratic risk is the most similar factor determining the existence of each blockholder. Tobin Q shows significant value in family and government, and R&D intensity appears to be a negative related to the presence of blockholder in financial institutions. We also find that the determinant of blockholder presence differs from the mechanisms that govern each individual blockholder type when all blockholders grouped together. This suggests that there is blockholder heterogeneity within Korea listing firms. Our findings contribute to investors and policy makers who interested in the determinants of the presence of blockholder and blockhoder heterogeneity in Korea stock market.

Blockholder Heterogeneity, Multiple Blocks, and the Dance between Blockholders

Abstract We study blockholder presence in a large panel and document substantial heterogeneity in holding periods, position sizes, and positions taken across blockholder types. Nonfinancial blocks are more likely to be observed in smaller, riskier, younger, and less-liquid firms. These patterns are either not evident or reversed for financial blocks. For all but small financial blocks, we detect significant negative interdependence in blockholder investment decisions, with the presence of one blockholder crowding out others, a behavior that appears causal. Small financial blocks often coexist in the same firm, an outcome that appears to reflect correlated investment styles. Received April 30, 2018; editorial decision November 23, 2018 by Editor David Denis.

The nexus between effective corporate monitoring and CEO compensation

Managerial compensation to top executives, particularly to CEO, has remained a topic of continuing interest in corporate finance literature. Corporations are required to pay a handsome amount to attract and motivate competent business executives to get their jobs done in a befitting manner. Accordingly, executives try to grab higher level of compensation for themselves which might be at the cost of harming firm value and shareholders' interests. In this context, various governing mechanism have been introduced to effectively monitor this opportunistic behaviour of executives. In this context, the current study empirically evaluates the impact of different corporate governance monitoring mechanisms such as institutional shareholders ownership and activism, independence of boards and audit committees, and presence of blockholders in company on level of compensation paid to CEO. The results revealed that more independent board and audit committee members meeting more frequently are helpful in mitigating the higher level of CEO compensation. Moreover, higher financial institutional ownership found positively related to CEO compensation which is in accordance with strategic alliance hypothesis between managers and sponsoring financial institutions.

The nexus between effective corporate monitoring and CEO compensation

Managerial compensation to top executives, particularly to CEO, has remained a topic of continuing interest in corporate finance literature. Corporations are required to pay a handsome amount to attract and motivate competent business executives to get their jobs done in a befitting manner. Accordingly, executives try to grab higher level of compensation for themselves which might be at the cost of harming firm value and shareholders' interests. In this context, various governing mechanism have been introduced to effectively monitor this opportunistic behaviour of executives. In this context, the current study empirically evaluates the impact of different corporate governance monitoring mechanisms such as institutional shareholders ownership and activism, independence of boards and audit committees, and presence of blockholders in company on level of compensation paid to CEO. The results revealed that more independent board and audit committee members meeting more frequently are helpful in mitigating the higher level of CEO compensation. Moreover, higher financial institutional ownership found positively related to CEO compensation which is in accordance with strategic alliance hypothesis between managers and sponsoring financial institutions.

Corporate Governance Practices and Audit Quality: Do They Matter for the Cost of Debt?

This paper sheds light on the effect of corporate governance practices and audit quality on the cost of debt. Particularly, we investigate the effect of the ownership structure and the audit committee independance, as well as the reputation of the external auditor, on the cost of debt. Based on a sample of Tunisian listed companies over the period 2007 to 2016 and using OLS regression models estimated with robust standard errors, our findings show that the cost of debt is inversely related to the director board size and the ownership concentration. Tunisian debtholders favour monitoring mechanisms that are likely to limit managerial opportunism and consider board monitoring effectiveness and the presence of blockholders as a source of greater assurance. The results also reveal evidence of a debt pricing effect of audit quality as measured by auditor size (Big4). The findings report, however, that the board composition and the presence of managerial shareholders, as well as the independence of audit committee have non-significant effect on the cost of debt.

La creazione di valore nelle strategie di disinvestimento: evidenze dal contesto europeo

Purpose of the paper : In this work, we analyze the role of pre-divestiture performance on the divestiture’s value creation in the context of European countries. Specifically, we explore the existence of potential interaction effects between pre-divestiture performance and the presence of blockholder and the degree of relatedness between the divesting firm core business and the divested business unit. Methodology : Econometric analysis on a unique dataset of 147 divestitures across thirteen countries is used to test the hypotheses. Findings : The pre-divestiture performance of the parent firm moderates the impact of both the blockholder and the relatedness on the parent’s post divestiture performance. Our findings indicate that when prior performance is higher, the impact of the presence of a blockhdolder on parent performance is less positive, while the impact of unrelatedness between the divesting firm’s core business and the divested business unit is less negative. Research limits: While our empirical analysis controls for the two most common modes of divestiture - spinoffs and sell-offs, we were not able to focus on homogeneous samples of divestiture deal types. Future work might more systematically test for differences across these modes, for instance through separate samples. Practical Implication : From a managerial point of view, executives need to be aware that divestiture strategies do not only represent tools to remedy to wrong managerial decisions, but rather can also be used to pursue the firm’s growth. Moreover, they should consider that ownership structure and relatdness may affect the performance of the divestiture deal in ways that are dependent on the pre-divestiture performance. This may lead managers to modify the timing and overall design of their divestiture strategies. Originality of the paper : Our study contributes to the divestiture literature by addressing the research gap on the determinants of the parent performance in European countries through a focus on pre-divestiture performance.

La creazione di valore nelle strategie di disinvestimento: evidenze dal contesto europeo

Purpose of the paper: In this work, we analyze the role of pre-divestiture performance on the divestiture’s value creation in the context of European countries. Specifically, we explore the existence of potential interaction effects between pre-divestiture performance and the presence of blockholder and the degree of relatedness between the divesting firm core business and the divested business unit. Methodology: Econometric analysis on a unique dataset of 147 divestitures across thirteen countries is used to test the hypotheses. Findings: The pre-divestiture performance of the parent firm moderates the impact of both the blockholder and the relatedness on the parent’s post divestiture performance. Our findings indicate that when prior performance is higher, the impact of the presence of a blockhdolder on parent performance is less positive, while the impact of unrelatedness between the divesting firm’s core business and the divested business unit is less negative. Research limits: While our empirical analysis controls for the two most common modes of divestiture - spinoffs and sell-offs, we were not able to focus on homogeneous samples of divestiture deal types. Future work might more systematically test for differences across these modes, for instance through separate samples. Practical Implication: From a managerial point of view, executives need to be aware that divestiture strategies do not only represent tools to remedy to wrong managerial decisions, but rather can also be used to pursue the firm’s growth. Moreover, they should consider that ownership structure and relatdness may affect the performance of the divestiture deal in ways that are dependent on the pre-divestiture performance. This may lead managers to modify the timing and overall design of their divestiture strategies. Originality of the paper: Our study contributes to the divestiture literature by addressing the research gap on the determinants of the parent performance in European countries through a focus on pre-divestiture performance.

Expression of Concern

Purpose The purpose of this paper is to investigate the effect of various corporate governance mechanisms such as board structure, ownership structure and debt level on the demand for better external audit quality. Design/methodology/approach Using a sample of 142 non-financial Moroccan companies, the authors examine the impact of the above corporate governance mechanisms on the audit quality of firms. The empirical model is tested with firms which include family businesses as well as listed and non-listed Moroccan companies. Findings The authors find a positive association between the demand for audit quality and the proportion of independent directors. The authors find evidence that the debt level has no impact on the demand for a better external audit; however, that there exists a complementary effect between the control exercised by independent directors and the demand for external audit quality. For ownership structure, the authors find a significant negative relation between the presence of blockholders and institutional investors and the demand for differentiated external audit quality, confirming the substitution hypothesis. Originality/value The paper has practical importance for corporate governance mechanism and audit quality in the developing economies of Africa. The study highlights that most family businesses have efficient corporate governance mechanism and therefore do not need to rely on the big audit firms for quality audit.

CEO power and matching leverage preferences

We study the effect of managerial power on CEOs' tendency to imprint their personal leverage preferences upon the firms they manage. Using a unique data source that allows us to measure personal wealth and indebtness in great detail, we find a connection between CEOs' personal leverage and that of their firms. The connection is driven by the CEOs with a longer tenure and the CEOs who serve in a dual role. The connection is significantly weaker for those CEOs who have a proportion of their personal wealth tied to the firm. Presence of block holders also weakens the connection.

Ownership and Capital Structure of Pakistani Non-Financial Firms

Existi ng literature has not yet defi ned a clear-cut relati onship between ownership structure and capital structure. This study aims to contribute to this controversial argument by examining the impact of internal (managerial) ownership and external ownership on fi nancing preferences using the case of non-fi nancial fi rms listed on Karachi stock exchange during the period of 2008-2012. Our results suggest that the external ownership has a signifi cant eff ect on capital structure in accordance with the presence of blockholders. In contrast, the internal ownership has a complicated eff ect; it shows signifi cant positi ve and negati ve relati onship to leverage at lower and certain higher proporti on of managerial shareholding respecti vely. Besides, the combined analyses suggest that the presence of blockholders negates the impact of managerial ownership on capital structure. This implies that the presence of large and dominant shareholders in Pakistani fi rms may have caused a bias for debt fi nancing to protect their voti ng power and returns.

Blockholder Heterogeneity, Multiple Blocks, and the Dance between Blockholders

We study the determinants of blockholder presence in a sample of 129,532 blockholdings distributed over 47,614 U.S. publicly listed firms from 2001 to 2014. The mechanism governing the determinants of blockholder presence for all blockholders grouped together differs in substantive ways from the mechanisms governing each individual type of blockholder, suggesting substantial blockholder heterogeneity. These differences offer insights into the roles of different blockholders in corporate governance, and also into blockholders’ underlying motivations and technologies. We find strong evidence suggesting that blockholder investment decisions are interdependent. Smaller blocks, particularly those of financial institutions, display substantial positive interdependence in the sense that the presence of one blockholder is associated with a greater than average likelihood of observing additional blockholders. Larger blocks, particularly those held by non-financial firms, display strong negative interdependence. This evidence for small and financial blocks is generally consistent with theories of blockholder governance through trading, while the evidence on other block interactions is better described by theories of monitoring and private benefits of control.

Does Price Efficiency Affect Real Efficiency? Evidence from Innovative Activities

This study finds that exogenous stock mispricing due to mutual fund fire sales/purchases adversely affects innovative efficiency. The adverse effect comes from the disruption of managers' market-learning. Managers glean R&D-relevant information from the stock market's reaction to patent news. When stocks are mispriced, managers continue to react to false signals unless they possess significant information as indicated by insider trading. The adverse effect of mispricing is stronger for firms with less insider information, lower peer stock price informativeness, and the presence of blockholders. Overall, the evidence suggests that price efficiency enhances real efficiency by providing informative signals for real decision-making.

Ownership and Capital Structure of Pakistani Non Financial Firms

AbstractExisting literature has not yet defined a clear-cut relationship between ownership structure and capital structure. This study aims to contribute to this controversial argument by examining the impact of internal (managerial) ownership and external ownership on financing preferences using the case of non-financial firms listed on Karachi stock exchange during the period of 2008-2012. Our results suggest that the external ownership has a significant effect on capital structure in accordance with the presence of blockholders. In contrast, the internal ownership has a complicated effect; it shows significant positive and negative relationship to leverage at lower and certain higher proportion of managerial shareholding respectively. Besides, the combined analyses suggest that the presence of blockholders negates the impact of managerial ownership on capital structure. This implies that the presence of large and dominant shareholders in Pakistani firms may have caused a bias for debt financing to protect their voting power and returns.

Corporate Governance and Bank Performance: A Study of Selected Banks in GCC Region

This paper examines the effect of corporate governance denoted by board size, duality, agency cost etc. on theperformance of selected 24 GCC banks based on the criteria of total assets for the financial year 2012-13.Tobin’s Q and Return on Total Assets (ROTA) are adopted as a measurement of accounting and financialperformance respectively.The results indicate that smaller boards are more capable for monitoring the management closely in GCCbanking sector. Dual role of Chief Executive Officer (CEO) are likely to improve the GCC bank performance.The presence of block holders in ownership structure of GCC banks tends to have a positive effect on theperformance of banking sector. Overall, the study concludes that the corporate governance poses a significantinfluence on the financial and accounting performance of GCC banking sector.

The effects of managerial discretion on moral hazard related behaviour: German evidence on agency costs

Based on a sample of German quoted firms in the period 2006–2010 this paper measures the impact of managerial incentives, entrenchment and blockholder monitoring on managerial behaviour typically associated with moral hazard. This is motivated by the observation that while typically the German institutional environment is characterised by the type-II conflict between large and dispersed investors, a number of regulatory and behavioural changes suggest that the issue of managerial leeway and complacency has gained in importance. I find that managerial entrenchment as proxied by excess compensation is associated with higher agency costs, i.e. lower asset turnover and higher discretionary expense ratio and acquisition activity, respectively. In contrast, there is no evidence of an incentive alignment effect of long-term compensation components. Concerning blockholder influence, while general blockholder presence has inconclusive effects, the presence of a blockholder belonging to the traditionally influential group of families, strategic investors and banks is significantly associated with lower agency costs. However, the presence of any other blockholder is associated with higher agency costs stemming from managerial discretion. Overall, this partly conforms to the hypothesis that German corporate governance may be changing in that the problem of managerial complacency and entrenchment has gained in importance; at the same time dominant blockholders still seem to exert influence on corporate policy.