Presence Of Multiple Large Shareholders Research Articles

Multiple large shareholders and audit fees: Demand‐side evidence from China

AbstractThis paper provides evidence on the role of multiple large shareholders (MLSs) in the determination of audit pricing from a new demand‐side perspective, rather than the typical supply‐side perspective. We find that for Chinese A‐share listed firms, the presence of MLS is associated with significantly higher audit fees. The results are robust after we address endogeneity concerns and use auditor choice as an alternative proxy to capture demand for auditing. Further tests show that audit fees increase with the number and relative power of noncontrolling large shareholders. The positive impact of MLS on audit fees is more pronounced for state‐owned enterprises (SOE) than in family‐owned enterprises. Moreover, this positive impact of MLS is more pronounced for SOEs with foreign blockholders and non‐SOEs with independent institutional blockholders. This positive impact is also more pronounced for firms with higher information asymmetry, severe agency problems and higher litigation risk. Overall, our results provide consistent evidence that firms with MLS are likely to demand high‐quality auditing, leading to higher audit fees.

Multiple large shareholders and M&A quality: evidence from China

ABSTRACT This study investigates the influence of the presence of multiple large shareholders (MLS) on the quality of mergers and acquisitions (M&A). Using data from the Chinese market, we find that the presence of MLS in acquiring firms is associated with a higher level of goodwill impairment in the three-year period following the completion of an M&A transaction, relative to firms devoid of such shareholder structures. The further analysis suggests that the identity of these shareholders is crucial; specifically, when the second-largest shareholder is identical to the controlling shareholder, the adverse effects on goodwill valuation are more significant. This relationship is mitigated when the identities of the controlling and the second-largest shareholders differ. The impact is particularly noticeable in transactions involving commitment performance contracts, related party transactions, and in sectors characterized by high goodwill valuations. This study contributes to the literature on the economic outcomes associated with MLS structures in China, a context marked by the prevalence of such ownership arrangements and limited minority shareholder protections.

Ownership Concentration, Firm Risk taking and Performance: Evidence from Developing Economy of Pakistan

Ownership structure has a substantial impact on corporate decision-making and plays a significant part in the corporate governance framework. Ownership structure can accomplish a significant purpose in aligning interest of managers and owners. The legal protections provided to shareholders in a country have a significant impact on ownership concentration. From 2008 to 2018, data on 225 non-financial companies were obtained from the Pakistan Stock Exchange in order to analyze the effects of ownership concentration on business risk-taking and performance. Results postulated that Single large shareholder negatively affect corporate risk taking in act to preserve their personal benefits and support conservative investment policy. Presence of Multiple large shareholders proved to be a significant cause of internal governance mechanism, such firm’s charades higher risk taking profile because agency conflict between Single large shareholder and other shareholders were unfriendly and multiple large shareholders can enforce value exploiting risky investments by their voting power. Individual ownership (diffused ownership) is significantly negative associated with risk taking and performance measures. Diffuse ownership imparts power to managers because disperse owners cannot directly monitor managers’ practices and monitoring cost is very high. In such case mangers take those decisions which are in their personal favor and therefore favor low risk portfolio. Multiple conflicts between management and diffuse shareholders ultimately results in poor performance of the firm.

Reducing Symbolic Compliance: The Presence of Multiple Large Shareholders as an Internal Monitoring Mechanism

AbstractWe propose that in a context where corporate ownership is concentrated, the controlling shareholder of a firm tends to symbolically comply to regulatory requirements that aim to protect minority shareholders; yet the presence of multiple large shareholders can serve as an internal monitoring mechanism that can reduce symbolic compliance. We test this argument through examining firm responses to a regulatory requirement regarding independent accounting director appointments in China. Using data on China's listed non‐state‐owned enterprises, we find that the presence of multiple large shareholders decreases the likelihood of symbolic compliance, and this negative effect is stronger when noncontrolling large shareholders have low incentives to collude with the controlling shareholder. We also find that a firm engaging in symbolic compliance tends to have a greater level of tunnelling (by the largest shareholder) and earnings management. Our study contributes to the literature on symbolic management in an institutional setting where ownership is concentrated.

Do multiple large shareholders affect corporate bond yield spreads? Evidence from China

We investigate the impact of multiple large shareholders on corporate bond yield spreads. We find that the presence of multiple large shareholders lowers bond yield spreads. In cross-sectional analysis, we find that the impact of multiple large shareholders on bond yield spreads only exists in subsamples with severe agency costs, high default risk, and poor information asymmetry, indicating that multiple large shareholders (MLS) reduce corporate bond yield spreads by disciplining the expropriation of controlling shareholders and lowering information asymmetry. Overall, our findings document a positive economic consequence of multiple large shareholders from the perspective of debt financing costs.

Multiple large shareholders and controlling shareholders’ related-party M&As

ABSTRACT This paper examines the impact of a common ownership structure – multiple large shareholders (MLS) – on controlling shareholders’ related-party mergers and acquisitions (M&As). Using a sample of 2,923 Chinese listed firms from 2003 to 2018, we find that firms with MLS are less likely to initiate controlling shareholders’ related-party M&As and if they do, pay lower M&A premium. Further tests show that the impact of MLS on controlling shareholders’ related-party M&As is more prominent when the relative power of other blockholders is stronger, when MLS are of different identity, when corporate governance mechanism is weaker, and when the agency conflicts are more severe. We also find that the presence of MLS is associated with higher related-party M&A performance. Our results imply that MLS monitor the controlling shareholder and improve governance, and hence restrain related-party M&As.

The Effect of Multiple Large Shareholders on Banks’ Profitability and Risk

The wide-ranging academic literature on corporate governance in the banking sector includes only a few studies on bank ownership and, specifically, on the comparative power of shareholders within the corporate structure. This paper reports an investigation into the presence of multiple large shareholders and their influence on profitability and risk in the long-term, considering a sample of 697 U.S. and European listed commercial banks from 2008 to 2018. It was found that the number of large and institutional shareholders has a positive impact on profitability, but no effect on risk. However, long-term ownership by multiple large shareholders contributes to decreasing risk in banks.

Impact of entrenched ultimate owners’ self-dealing on SEO methods choice and discounts of private placements––Evidence from listed companies in China

This study investigates how ultimate owners' self-dealing motivations can affect seasoned equity offering (SEO) methods using the data on listed companies in China during 2006–2015. We find that public equity offerings conduce to enhanced ultimate owner's control and preserve the control structure of the issuers. Moreover, there is a significant positive relation between controlling shareholder's control margin and the likelihood of choosing a private placement. A firm is more likely to choose public offerings in the presence of multiple large shareholders. Further tests show that self-dealing motivations significantly affect price discounts of private placements.

Do executives benefit from shareholder disputes? Evidence from multiple large shareholders in Chinese listed firms

Prior research documents that ownership by multiple large shareholders (MLS) could alleviate agency conflicts between controlling shareholders and small shareholders through improved monitoring. We provide evidence of a “dark side” to MLS. Using a sample of Chinese listed firms during 2005–2014, we find a positive association between the presence of MLS and excess executive compensation. Furthermore, excess compensation is greater in firms in which the different types of large shareholders have relatively equal voting power. Overall, these results imply that coordination friction among MLS reduces large shareholders' monitoring efficiency and exacerbates agency problems between shareholders and executives.

A pecking order of shareholder structure

We develop and test an ownership structure pecking order. Our ownership pecking order sorts out which structures are likely to have relatively fewer agency costs versus higher agency costs. At the top of the pecking order are firms with a single controlling shareholder, they have the lowest agency costs when that shareholder is not the government. Next is the presence of multiple large shareholders. They are even more effective when the large shareholders are of the same type. The structure with the highest agency costs consists of a single large non-controlling shareholder. Our empirical tests confirm this pecking order.

Multiple Large Shareholders, Excess Leverage and Tunneling: Evidence from an Emerging Market

AbstractManuscript TypeEmpiricalResearch Question/IssuePast empirical efforts in corporate governance have examined the effects of large shareholders with excess control rights on tunneling activities. However, no study has systematically investigated the effects of multiple large shareholders on excess leverage policies and tunneling in an emerging country environment where minority rights protection is weak. In this study, we examine the role of multiple large shareholders and the effects of control contestability of multiple large shareholders on firm excess leverage decision and tunneling by controlling shareholders.Research Findings/InsightsUsing a sample of 2,341 Chinese firms for the years 2001 to 2013, we document that the contestability of multiple non‐controlling large shareholders relative to controlling shareholders reduces the adoption of excess leverage policies, tunneling and enhances capital investment. Another intriguing finding is that the government, as a controlling shareholder, exerts significant influence and reduces the monitoring effectiveness of multiple larger shareholders.Theoretical/Academic ImplicationsBy addressing the role of multiple large shareholders on excess leverage decisions, this study makes an important contribution to the corporate governance literature. We extend the recent developments in agency theory regarding the role of multiple large shareholders in constraining expropriation of controlling shareholders with excess control rights and their effect on firm leverage decisions. Our results support the theoretical models which indicate that the presence of multiple large shareholders is an important and efficient internal governance mechanism that mitigates a firm's agency costs, particularly, in an emerging market environment where corporate governance is weak and inadequate to curb the tunneling problem.

Ownership structure, control contestability, and corporate debt maturity

The corporate governance literature has shown that self-interested controlling owners tend to divert corporate resources for private benefits at the expense of other shareholders. Such behavior leads the controlling owners to prefer long maturity debt to short maturity debt, to avoid frequent monitoring by lenders, which creates conflict between controlling and minority shareholders over the maturity structure of debt. In this paper, we examine whether the presence of multiple large shareholders (MLS), beyond the controlling owner, helps to mitigate this conflict. Using a large data set of French publicly traded firms during the period 1998–2013, we find strong evidence that firms with MLS exhibit shorter debt maturity. This result suggests that MLS curb the extraction of private benefits by the controlling owner and reduce her preference for less monitoring through the use of longer maturity debt. The findings are robust to a number of checks, including addressing endogeneity concerns and using alternative sample compositions and alternative regression frameworks.

Multiple Large Shareholders And Owner-Manager Compensation: Evidence From French Listed Firms

The objective of this study is to examine the relation between complex ownership structures and managerial compensation. More specifically, we examine the impact of the owner-managers excess control and the presence of multiple large shareholders (MLS) on the owner-managers compensation. Using a sample of French publicly listed firms, the results reveal several important points. First, the owner-managers compensation increases with the owner-managers excess control. This finding indicates that managers use their power to increase their pay, hence expropriating minority shareholders. Second, the presence of MLS decreases managerial opportunism and prevents owner-managers from diverting corporate resources for their own benefit. Hence, MLS play an important monitoring role.

The Company You Keep: The Effect of Other Large Shareholders in Family Firms

AbstractManuscript TypeEmpiricalResearch Question/IssueUsing a panel of non‐financial listed firms over a seven‐year period, the authors analyse how the value of family firms is potentially affected by the existence of multiple shareholders, by other large shareholders’ voting rights in relation to the family's, by the final power distribution (that is, whether the family's voting rights exceed those of other shareholders), by the identity of the blockholders, and the existence of shareholder agreements.Research Findings/InsightsAfter controlling for possible self‐selection bias and for endogeneity issues, the results of a Heckman two‐stage method suggest that other large shareholders’ voting rights in relation to the family's do not affect family firm value. The results indicate that what seems to matter is who controls the company in terms of voting power, i.e., whether there is just one large shareholder or other major blockholders as well, and whether they have more or fewer voting rights than the largest owner. The market favors a firm that has multiple large shareholders provided that the family retains control by holding most of the voting rights. However, when there is just one family owner or when other blockholders have more voting power than the family, industry‐adjusted family firm value is negatively affected. The existence of shareholder agreements and families and non‐financial firms as other blockholders has no impact on company performance, while foreign shareholders tend to increase family firm value.Theoretical/Academic ImplicationsAcademics should take the presence of multiple large shareholders into account as this can affect family power. It is not a question of collusion or contestability per se. The market seems to value other large investors’ ability to balance family power only if families retain control by holding the majority of the votes. The preferred model therefore resembles that of a king amid nobility, a “primus inter pares”, with other large blockholders (nobility) providing a credible and strong but not overwhelming opposition that benefits minority owners.Practitioner/Policy ImplicationsWhen multiple large owners exist, firm value is increased if the family retains power. Ownership structure matters and the effect of other large shareholders’ voting rights on minority investors’ wealth has to be considered. New variables to describe particular situations in family firms are needed.

Family control and corporate cash holdings: Evidence from China

This study examines the effect of family control on the cash holding policy in China. We find that family firms with excess control rights tend to have high cash holdings that are tunneled rather than being invested or paid to shareholders. We further show that the incentive for controlling families to hold cash and for tunneling is exacerbated by the agency conflict between controlling and minority shareholders, i.e., it is weakened after the Chinese Non-tradable share (NTS) reform and strengthened by the presence of multiple large shareholders who probably play no monitoring role in Chinese family firms. Furthermore, family firms’ incentive to hold cash for tunneling is influenced by the unique characteristics of Chinese firms in the following ways: the incentive is stronger when the family founder has one child and face family succession problem, and when the founder has political connections and directly involves in firm’s management; while it is weakened by family founder’s social interpersonal trust with other entrepreneurs through their membership of Chambers of Commerce. Overall, we argue that family firms in China tend to hold high levels of cash for tunneling, which harms firm value, while the severe controlling-minority shareholder agency conflicts and unique Chinese family characteristics only make this situation worse.

Family Control and Corporate Social Responsibility: Evidence from East Asia

This paper investigates the impact of family control on corporate social responsibility (CSR) performance. Using Carney and Child's (2013) newly collected data on the ultimate ownership structure of publicly traded firms in nine East Asia economies, we find that family control has a significantly negative impact on CSR performance, which is consistent with the entrenchment view of family ownership. Also, we find that the presence of multiple large shareholders helps to improve the CSR performance of family firms. Moreover, our results are robust to inclusion of other types of ownership, different CSR components, endogeneity tests, subsample tests, alternative estimation methods, and alternative definition of family firms. Our study contributes to our understanding of the corporate governance of family-controlled firms and the determinants of CSR.

Multiple large shareholders, control contests, and implied cost of equity

In this paper, we examine whether the presence of multiple large shareholders alleviates a firm's agency costs and information asymmetry manifested in the cost of equity financing. Using data for 1165 corporations from 8 East Asian and 13 Western European countries, we find evidence that the implied cost of equity decreases with the presence, number, and voting size of large shareholders beyond the controlling owner. We also find that the identity of the second largest shareholder is important in determining the risk of corporate expropriation in family-controlled firms. Our regional analysis reveals that, mainly in East Asian firms, multiple large shareholders structures exert an internal governance role in curbing private benefits and reducing information asymmetry, perhaps to sidestep deficiencies in the external institutional environment.

Multiple Large Shareholders, Control Contests, and Implied Cost of Equity

In this paper, we examine whether the presence of multiple large shareholders alleviates firm's agency costs and information asymmetry embedded in ultimate ownership structures. We extend extant corporate governance research by addressing the effects of multiple large shareholders on firm's cost of equity capital - a proxy for firm's information quality. Using data for 1,165 listed corporations from 8 East Asian and 13 Western European countries, we find evidence that the implied cost of equity decreases in the presence of large shareholders beyond the controlling owner. We also find that the voting rights, the relative voting size (vis-a-vis the first largest shareholder) and the number of blockholders reduces firm's cost of equity. Interestingly, we uncover that the presence of multiple controlling shareholders with comparable voting power lowers firm's cost of equity. We also find that the identity of the second largest shareholder is important in determining the risk of corporate expropriation in family-controlled firms. Our regional analysis reveals that, mainly in East Asian firms, multiple large shareholders structures exert an internal governance role in curbing private benefits and reducing information asymmetry evident in cost of equity financing, perhaps to sidestep deficiencies in the external institutional environment.

Shareholders’ coalitions and control contestability: The case of Italian voting trust agreements

Since ownership structures characterized by the presence of multiple large shareholders are extremely common around the world, the effects of having such a controlling structure are receiving increasing attention in literature. More than one third of Italian listed companies are controlled by coalitions of shareholders bound together by agreements called “voting trusts” which represent an interesting opportunity to study the consequences of having multiple large shareholders who share the control of firms. We perform an event-study on voting trust announcements (2004-2006), showing significant abnormal returns in both the event day and the following day. The sign of this cumulative reaction is negative for announcements of new/renewed trusts and positive in the cases of trust terminations. These findings are consistent with the “entrenchment effect” hypothesis linking the ownership structure and the firm value. As a general result, the presence of multiple large shareholders tied within a voting trust, by curbing the company’s contestability is reflected in a lower valuation of the firm