Separation Of Control Rights Research Articles

Foreign residency rights and corporate supplier concentration: Evidence from China

Using data of Chinese non-state-owned firms, we investigate the impact of controlling person’s foreign residency rights on corporate supplier concentration. We find that a firm’s supplier concentration decreases when its controlling persons have foreign residency rights, particularly when the country of residence has no extradition agreements with China or has a weak institutional environment. The impact is more pronounced for firms in competitive industries, firms with larger separation of control rights and cashflow rights, firms with fewer independent directors, and firms with fewer analyst coverage. Studies on influencing channels show that foreign residency rights decrease corporate supplier concentration through an increase in corporate fraud and cash flow risks, and a decrease in corporate information disclosure quality and overseas investment efficiency. Finally, we find that the reduced corporate supplier concentration accompanied by foreign residency rights decreases corporate operating performance and increases operating risk. We also find that suppliers’ such reaction can increase their operating performance and decrease operating risk.

Can Investors Gain Incremental Information Through Online Searching? Evidence from China

ABSTRACT This study investigates the impact of investors’ online searching on the pricing efficiency of the capital market from the perspective of stock price synchronization. Using the Chinese firms listed in the Shanghai and Shenzhen Stock Exchanges from 2013 to 2019, we find that the more investors’ online searches there are, the less serious the stock price synchronization issue is. Consistent with the notion that online search facilitates the inclusion of more company-specific information in stock prices, we find that the effect of investors’ online searching on weakening the company’s stock price synchronization is more pronounced for companies with worse stock liquidity and higher separation of control rights and cash flow rights. Moreover, we demonstrate that investors’ online searching can weaken stock price synchronization by reducing irrational herding behavior. A further examination of the herding behavior of different investors reveals that online searching mainly plays a role in reducing the herding behavior of individual investors. Collectively, these results indicate that online searching is important for investors to gain greater access to valuable information.

Dual-class stock structure and firm investment

Dual-class stock structure helps insiders gain control through different voting rights, but also exacerbates the principal-agent conflict. The separation of control rights and cash flow rights enhances managerial opportunistic behavior. We find that dual-class stock structure aggravates the over-investment behavior of listed firms. The impact of free cash flow on over-investment is more severe in dual class firms than in single-class firms. Paying cash dividends reduces the effects of dual-class stock structure, and separation of control and cash flow rights on overinvestment. Regulators need to strengthen the supervision to restrict managerial opportunistic behavior in firms with dual-class share structure.

Book-Tax Alignment in Family Firms: Evidence from Taiwan

This paper examines the differences in aggressive tax sheltering between family firms and non-family firms and the effects of family succession on tax sheltering. Additionally, we investigate whether the separation of control rights and ownership is the main driver for tax sheltering activities. Using data from Taiwanese firms during a period from 2002-2009, the results show that family firms are more aggressive in tax sheltering as compared to non-family firms. Finally, we provide evidence that the divergence between control and ownership is a key driver for tax sheltering activities.

Market Feedback And Managers’ Decisions In Private Placement – Evidence From Chinese Family Firms

What effect does market feedback have on managers’ decisions on private placement in family firms? Based on information asymmetry, agency theory, and corporate governance theory, we investigate the relationship between managers’ final decisions and market feedback to the announcement. We find that managers in family firms accept market feedback in decision-making and their attitude can be affected by many external factors. Managers tend to listen to the market when family firms are non-high-tech, when family members participate in purchasing the placed shares, when family members serve as managers, and when separation of control rights from ownership is small.

The catering of controlling shareholders, investor sentiment and corporate investment efficiency

This paper studies the impact of investor sentiment on corporate investment efficiency from perspective of controlling shareholders’ catering. Using a sample comprises of the listed Chinese manufacturing companies from 2004-2013, the paper concludes that the controlling shareholders in highly share-concentrated companies not only have the ability and motivation to garb interests from the minority shareholders for PBC, but also can moderate the investor sentiment’s impact on corporate investment efficiency. Besides, different share-holding ratio of controlling shareholders, separation of control rights and cash flow rights, controlling shareholders’ nature were found to have different moderating effect.

The Impact of Separation of Control and Cash Flow Rights on Diversification—Evidence from China

Business diversification could be a channel through which controlling shareholders encroach on the interests of listed companies. Using China’s private listed companies of SME (small and medium-sized enterprises) board from 2009 to 2011 as sample, this study investigates the effects of large shareholders’ controlling power on the diversification of both listed companies and their holding groups. Our findings demonstrate that the level of listed companies’ diversification is positively related to the degree of separation of control rights and cash flow rights of controlling shareholders. Moreover, the higher the separation degree of control and cash flow rights, the higher the level of diversification of the holding groups, indicating diversification is also adopted by the holding group as a channel to expropriate listed companies.

Ultimate ownership, institutionality, and capital structure

Purpose – The purpose of this paper is to illustrate and examine the effects of ultimate ownership, institutionality and their interactions on capital structure in a unified framework, based on evidence from China. Design/methodology/approach – Using six years of panel data of Chinese non-financial listed firms between 2004 and 2009, this paper estimates with correlation analysis and multiple regression analysis. Findings – This paper finds that debt financing facilitates the ultimate owner's expropriation behavior. The separation of control rights and cash flow rights is positively related to capital structure, while cash flow rights negatively affect it. Compared with private ultimate owners, state ultimate owners have less incentive to reap the benefits of expropriation, implying that the separation of control rights and cash flow rights has a smaller effect on the capital structure of state-owned firms. The improvement of institutionality can restrain ultimate owners' expropriation behavior, and regional institutional development is negatively related to capital structure. The separation of control rights and cash flow rights has a smaller positive effect on capital structure in regions with better-developed institutionality. Originality/value – This paper incorporates ultimate ownership and institutionality into a unified analytical framework of capital structure. It not only enriches related studies on capital structure, but also helps us understand the institutional roots of irrational capital structure behaviors in China. This paper also provides further evidence on ultimate owners' expropriation of minority shareholders through debt financing.

Corporate governance and performance: Evidence from Chinese private listed companies based on cash flow rights and control rights

This paper investigates the relationship between control rights, cash flow rights, and firm performance across a sample of 276 China’s private listed companies (CPC) from 2003 to 2008. This paper finds that the performance of firms with pyramid ownership structures (POS) is lower than that of firms with direct controlling ownership structures (DOS). The separation of control rights and cash flow rights, which is the main characteristic of POS, is negatively related to the firm performance. Furthermore, in order to reduce the negative influence of control rights, this paper proposes the following countermeasures: cash flow rights should be increased because it has a positive effect on the firm performance; the supervisory powers of shareholders meeting (SM) should be strengthened because it helps improve firm performance and overrule invalid decisions taken by independent directors in China. This is proved by the findings that show a positive correlation between the attendance rate at shareholders’ meetings and firm performance; moreover, there is no positive relationship between independent directors and firm performance.

Cash holdings and corporate governance in family-controlled firms

This study examines the association between corporate governance and cash policy within family-controlled firms. Family businesses are complex, because, in addition to dealing with common business requirements and opportunities, they must consider the needs and desires of the family owners. The results of this study show that the impact of corporate governance, with its separation of control rights and cash flow rights, director-ownership-in-pledge ratio and proportion of independent directors on cash policy, differs between family-controlled and nonfamily-controlled firms. Separation of seat control rights and cash flow rights, as well as chair duality, significantly affects the cash policy within different levels of cash holdings in firms.

Investor protection and convertible debt design

An important issue that firms consider when designing convertible debt is to specify security features such as conversion ratio, maturity date and call period. Following Lewis et al. [Lewis, M., Rogalski, R., Seward, J., 2003. Industry conditions, growth opportunities and market reactions to convertible debt financing decisions. Journal of Banking and Finance 27, 153–181], we employ a single measure that simultaneously considers all of these features: the expected probability (measured at issue date) that the convertible will be converted to equity at maturity. We find that firms in countries with stronger shareholder rights issue convertible debt with a higher expected probability of converting to equity. The positive association between the expected probability of conversion and shareholder rights is less pronounced in firms for which ownership structures create potentially high managerial agency costs. Specifically, in countries with stronger shareholder rights, firms with higher separation of control rights and cash flow rights tend to issue convertibles with lower probability of conversion. Furthermore, we find that large non-management block ownership strengthens the likelihood of issuing convertible debt with higher probability of conversion in countries with stronger shareholder rights. In contrast, firms in countries with stronger creditor rights issue convertibles with lower probability of conversion. We also document that the negative association between creditor rights and probability of conversion is more pronounced in firms with higher separation of control rights and cash flow rights.

Separation of control rights and cash-flow rights in emerging economies: theory and Mexican evidence

Researchers have identified that corporate ownership structures appear to be quite different in developed and developing economies. For instance, Castañeda Ramos (1999) provides evidence of considerable separation of cash-flow rights and control rights accruing to inside and outside equityholders in publicly listed firms in Mexico. Insiders use mechanisms such as dual voting rights, majority rules and pyramids to maximise their control rights while holding minimal cash-flow rights. In contrast, there is a much closer alignment of cash-flow rights and control rights in developed countries such as UK or US. The purpose of this paper is to develop a game-theoretic model that explains these features. We argue that factors in emerging markets, such as large private benefits of control, extreme risk, low investor protection, inefficient capital markets, and governments sympathetic to incumbent management at the expense of outside investors, all contribute to insiders’ incentives to create a separation of cash flow and control rights. We present evidence from Mexico that supports our results