Shareholder Returns Research Articles

Control risk premium: Dual‐class shares, family ownership, and minority investor returns

AbstractDespite exhibiting significant valuation discounts, dual‐class shares surged from 1% of initial public offerings in 1980 to nearly half in recent years. This study investigates the potential harm of such structures by examining the identity and returns of minority shareholders. We find that sophisticated investors predominantly hold low‐voting shares. Furthermore, outside shareholders earn a positive risk premium rather than suffering low returns, consistent with the hypothesis that market prices compensate for the risk associated with dual‐class structures. Our analysis reveals that such structures are confounded with family control, which is present in 89% of dual‐class firms in the Russell 3000. Interestingly, single‐class firms with family shareholders also enjoy positive abnormal returns, implying minority shareholders care more about the presence of a controlling shareholder than a specific voting structure. This research contributes to the ongoing debate on restricting dual‐class structures by highlighting the complex relationship between ownership, control, and shareholder returns.

Technology acquisitions and investor expectations: Reputation and expectancy violation perspectives

AbstractEmploying the organizational reputation lens and expectancy violation theory (EVT), I examine how financial market investors (investors) affect the technology acquisition activity and the likelihood of survival of firms facing technological change. I theorize that when a firm has a growth reputation, that is, investors expect revenue growth in future periods, the likelihood of making an acquisition will increase in anticipation of a positive expectancy violation on the part of investors. In contrast, for a firm that has an income reputation, that is, investors expect shareholder returns in future periods, the likelihood of making an acquisition will decrease in avoidance of a negative expectancy violation on the part of investors. I predict a novel moderating effect of investor expectations—a firm's acquisition activity will exert a stronger positive effect on its likelihood of surviving technological change when investor expectations are growth‐oriented, that is, when there is a positive expectancy violation. Using a multi‐industry sample of industry convergence, a salient form of technological change, I find support for my theoretical predictions. I advance research that examines the reactions of investors to firm strategies during technological change to the domain of technology acquisitions, a salient strategic decision. I also expand the predictive utility of the reputation lens and EVT to the context of firm survival during technological change.

Impact of Non-performing Corporate Assets on Shareholder’s Equity and Return on the Application of AI and Block Chain Technologies

One of the major challenges for banks, NPAs have an adverse impact on profitability, stability, and shareholders' equity. The current study, therefore, is an attempt to explore the impact of NPAs on shareholders' equity and returns, with special emphasis on the application of AI and block chain technologies as innovative solutions to the problem. It considers takaful principles in examining Fintech Corporations characterized by high NPAs and focuses on the main external and internal factors behind NPAs high interest rates, inadequate monitoring, natural calamities, willful defaults, recession, and unhealthy competition. The study uses AI-based predictive analytics to project potential NPAs and proactive measures in enhancing asset management processes. Block chain helps to introduce transparency and security of financial transactions, providing an immutable ledger that will help in creating accurate record-keeping and auditability. Taken together, these technologies offer robust solutions for the management of NPAs, risk reduction, and financial stability. Results underline the huge impact AI and block chain can have in attenuating the negative impact of NPAs on shareholder equity and returns. These technologies, therefore, stabilize and make the banking sector more effective by addressing these interrelated external and internal factors. This research thus follows the journal's focus on the implementation and management of advanced information systems to improve socio-economic environments related to the potentials AI and block chain can bring into the process of financial management.

Effect of Long-Term Debt on Financial Performance of Cement Manufacturing Companies

Due to its critical role in overall economic development, the cement industry is identified as one of the areas of the first and second Growth and Transformation Plan (GTP) as a sector of special consideration. However, the main objective of this study is to examine the effect of long-term debt on financial performance in cement manufacturing companies. Moreover, the specific objectives include; examining the effect of long-term debt on return on assets in cement manufacturing companies, also, to examine the effect of long-term debt on return on equity in cement manufacturing companies, in addition, the study identifies two financial performance measures which include; return on assets and return on equity, and directly considered with the relationship of long-term debt. The methodology of this study is exclusive criteria; because the study reviewed only recent studies from 2019-2023 that reported on long-term debt and financial performance. The data is gathered through the means of review and analyzed through identifying the outcome of the reviewed studies. Therefore, based on the majority, the study found a significant negative influence of long-term debt (LTD) on financial performance measured by return on assets (ROA) of cement manufacturing companies and also, a negative effect was found with the financial performance measured by return on equity (ROE) of cement manufacturing companies. In line with the findings, the study concludes that there is a negative effect of long-term debt on financial performance measured by both the (ROA and ROE) of cement manufacturing companies. Similarly, the study recommends that cement manufacturing companies avoid the use of debt in financing their assets; also, the cement manufacturing companies should also focus much on internal financing so as to improve shareholder returns.

Tobin's Q and shareholder value: Does “shareholder return” impede investment?

Tobin's Q and shareholder value: Does “shareholder return” impede investment?

A New Pre-Incorporation Roadmap to Support the Reduction of Insolvency Numbers?

There is a plethora of sources in England and Wales governing corporate insolvencies for directors of limited companies in financial distress or approaching or entering the insolvency process, together presenting to the company director a legislative framework lacking in coherence. There is also a lack of consistency in common law judgments, resulting in a lack of certainty for a director facing potential ruin if held personally liable.None of these factors support the UK government’s claimed rescue culture, which statistics show is failing. This is of increasing importance: the Covid-19 pandemic has already resulted in a wealth of companies in financial distress in a wide range of sectors.Access to limited liability is not a right, it is a benefit, one that can adversely impact on creditors when companies are struggling; it is only right that the obligations that come with enjoying that access are clearly defined, governed and managed. The authors present an alternative pre-incorporation roadmap for legislators and directors, aimed both at supporting the government’s rescue culture and leaving entrepreneurs free to leverage their knowledge to maximise shareholder returns, rather than worrying about safeguarding their own positions in relation to directorial duties and obligations during periods of financial distress.

“Carbon” boards and transition risk: Explicit and implicit exposure implications for total stock returns and dividends payouts

Transition risk disclosure facilitates investors' understanding of the potential company-level risks associated with a low-carbon transition. Among the others, stricter regulations could undermine companies' financial performances, affecting operations costs and revenues and their impact being proportional to the business carbon intensity. Transition risk disclosure takes two forms. One is a textual description of transition risk in compulsory and voluntary non-financial disclosure. The other is the disclosure of carbon emissions and intensity, which is implicitly associated with transition risk exposure. We empirically assess the impact of the two transition risk measures on shareholder returns to test the “carbon premium” hypothesis. We consider shareholder return as the sum of capital gain and dividend paid and analyse the impact of transition risk on both. Evidence supports the “carbon premium” hypothesis but suggests such a premium is transferred to shareholders primarily via dividend payouts. One possible explanation consistent with this evidence is that boards in highly polluting companies use dividends to compensate investors for the relatively lower capital gain, dissuading them from divesting due to low returns, stigmatisation effects and regulatory risks.

Working capital balances and financial policy

A firm's working-capital account balances demonstrate substantial connections with its financial policy. Receivables and inventories are associated with lower asset volatility and higher future cash flow, and correlate with increased leverage. Conversely, payables show a positive association with shareholder return volatility and a negative correlation with future cash flow and are linked to decreased debt levels. In dynamic panel regressions estimated with system Generalized Method of Moments (GMM), a one standard-deviation increase in payables (receivables) is associated with a 0.42 (0.66) standard-deviation decrease (increase) in leverage. Furthermore, higher levels of inventories and receivables are linked with higher firm credit ratings, along with a preference for debt financing over equity issuance, while increased payables are linked with lower credit ratings and a tendency to favor equity financing over debt financing. The QuickPay regulatory shock, expediting payments and reducing receivables' volume and quality, diminished their collateral role and lowered debt sensitivity to receivables.

Strategy and challenges of value-based intermediation implementation: the case of BIMB

Purpose The present study aims to evaluate the VBI strategies that have been implemented and to analyze the implementation challenges that BIMB has encountered. Design/methodology/approach A case study method was used to generate an in-depth and multi-faceted understanding of VBI strategy implementation in Bank Islam Malaysia Berhad (BIMB). A semi-structured in-depth interview was conducted with BIMB which is among of the earliest members of the VBI Community of Practitioners (CoPs). The data were transcribed and analyzed based on the content and thematic analyses. Findings This paper provides insights into how Islamic bank, i.e. BIMB, implement initiatives and strategies for adopting VBI based on the four underpinning principles. VBI is seen as a continuous strategy implementation of what has been practiced in BIMB, for instance, the Sadaqah House initiative introduced in 2018. Research limitations/implications The primary limitation of the study is that it only focused on BIMB and does not represent the larger members of VBI CoPs among Islamic banks in Malaysia. A larger sample would have given more trustworthy results and could give better insights on the VBI implementation. Practical implications A good strategy implementation can be realized by generating a positive and sustainable economic, societal and environmental impact consistent with sustainable shareholder returns and long-term interests. The regulator should consider the policy implications of this study by strengthening the VBI and encouraging more Islamic and conventional banks to adopt it based on the findings. Originality/value The originality of this study is that it focuses on strategy implementation and the challenges facing Islamic bank toward VBI. It provides information on the implementation strategy of VBI in Islamic banks in Malaysia and facilitates other Islamic banking institutions, specifically future members of CoPs in creating a strong ethical foundation.

Do corporations benefit from divesting to private equity acquirers? An empirical investigation

AbstractResearch SummaryFrom the perspective of the divesting firm, do divestitures to private equity (PE) acquirers perform differently from divestitures to corporate acquirers? If so, why? This question‐based, empirical study shows that on average, divestitures to PE acquirers correlate with lower divesting firms' shareholder returns than divestitures to corporate acquirers. The study explores whether these lower returns when divesting to PE acquirers are explained by the differences in PE acquirers' distinct value creation strategies when it comes to target selection, ownership, or transaction timing. The results reveal that divesting firms' lower shareholder returns when divesting to PE acquirers are more likely correlated with differences in value creation by PE acquirers due to their distinct ownership and transaction timing strategies, but not their selection strategies.Managerial SummaryPrivate equity (PE) firms are prominent buyers of corporate divestitures, and PE firms' strategies for creating value when acquiring divested businesses tend to differ from those of corporate buyers. Yet the performance implications, from the perspective of the divesting firm, of divesting a business to a PE acquirer versus a corporate acquirer are not clear. In this study, I explore the differences in returns to firms divesting to PE acquirers versus those divesting to corporate acquirers. First, on average, divesting firms' returns are lower when divesting to PE acquirers. Second, these lower returns are more likely to occur when the PE acquirer may be expecting to create less value, or when firms choose to divest at a suboptimal time.

Does corporate governance report disclosure increase stock retirement? Evidence from Korea

This study examines the influence of the mandatory disclosure of corporate governance reports on stock retirement in Korea. Given the challenges of applying stock repurchasing to measure shareholder return policy in the Korean stock market, this study focuses on stock retirement as a key indicator to examine the effectiveness of introducing the corporate governance report on shareholder return policy. Employing the Difference-in-Differences approach followed, this paper conducts empirical analyses based on 5,932 observations from 2011 to 2020. The main findings indicate a significant increase in stock retirement by companies implementing mandatory disclosures of corporate governance reports (coef = 0.018, p-value <0.01) compared to companies that do not disclose them. The results of the alternative measures for stock retirement and propensity score matching (PSM) model also present a positive association between mandatory disclosure of corporate governance reports and stock retirement, respectively (coef = 0.400 and 1.421, p-value <0.01; coef = 0.019, p-value < 0.1). This study provides evidence to support the notion that introducing corporate governance reports enhances overall shareholder returns, leading to an increase in stock retirement. Moreover, these findings validate that stock retirement is an adequate proxy for analyzing the level of shareholder returns in Korean firms.

The Impact of Value Creation (Tobin’s Q), Total Shareholder Return (TSR), and Survival (Altman’s Z) on Credit Ratings

This research explores the impact of financial indicators on the credit ratings of companies listed on the S&P 500, employing a Sys-GMM model to address endogeneity concerns. Three independent variables categorized as market and survival factors alongside seven control variables sourced from leverage, liquidity, interest coverage, profitability, market, survival, and macroeconomic domains were investigated. The sample consisted of 2398 observations from Capital IQ Pro, spanning nine years (2013 to 2021) and encompassing 240 public companies. The findings suggest that neither Tobin’s Q (TQ) nor Total Shareholder Return (TSR) lack significant correlations with credit ratings, implying that stock market performance and total shareholder return do not directly impact credit ratings. In contrast, the Altman Z-score (AZS) emerged as a significant predictor, indicating its importance in assessing credit risk. These insights enhance the understanding of financial indicators’ impacts on credit ratings, aiding financial institutions and companies in prudent lending and financing decisions.

Meeting Stakeholder Needs: Who Should Managers Pay Close Attention To? Evidence from Listed Chinese Manufacturing Companies

Meeting Stakeholder Needs: Who Should Managers Pay Close Attention To? Evidence from Listed Chinese Manufacturing Companies

CEO Type and Firm Performance: Evidence from Nasdaq Baltic

Despite the well-established characteristics of shareholder-CEOs and professional-CEOs, previous research has yielded inconclusive findings on the actual impact of the separation of shareholding and management on firm financial performance. This study aimed to address this gap by going off the beaten path of research centered on the U.S.-listed firms and investigating 55 firms listed on the Nasdaq Baltic market in the post-Soviet countries of Estonia, Latvia, and Lithuania from 2017 to 2021. While professional-CEO-led firms displayed higher Tobin’s Q (M = 1.37) compared to shareholder-CEO-led firms (M = 1.17), and shareholder-CEO-led firms had a higher average ROE (M = 7.76%) compared to professional-CEO-led firms (M = -1.74%), independent samples t-test analysis revealed that these differences in either stock market performance (p = .250 > .05) or shareholder return (p = .193 > .05) were statistically insignificant. These findings challenge organizational life cycle theory and agency theory predictions, aligning instead with stewardship theory and upper echelons theory, suggesting that CEO characteristics, motivation, and actions, while clearly distinct for shareholder-CEOs and professional-CEOs, are not the sole determinant of financial performance in mature firms. Accordingly, shareholder-CEOs, other stockholders, and boards of directors should draw support from these findings in their considerations regarding firm leadership.

Is the market biased in M&A, dividend payment, and share repurchase events?

Companies with excess capital can opt to: pay dividends to shareholders, buy back treasury shares for short-term shareholder benefits, or pursue M&A investments for long-term shareholder returns. Using difference in differences approach of event research methods combined with unique manually collected data sets, this paper investigates the market bias for three events: M&A, share repurchase, and dividend payment. The results show that information was leaked to the outside 1 day before it was officially announced at all events. When observing the company's performance 3 years after the event announcement, we also find that the market reaction is biased in M&A and stock dividend payment events, but accurate in the cash dividend payment and share repurchases. In addition, the market has the strongest and longest reaction to the news of the company buying back shares; has the weakest reaction to the stock dividend payment; has the shortest reaction to cash dividend payment; has a negative reaction to the acquisition company's stock, and has a positive reaction to the target company's stock. Our research has provided empirical evidence on the market response to published information, and supports CEOs make the most accurate choices when the company has an excess cash flow.

Analyzing the impact of environmental strategies on corporate governance and long-term performance

This study delves into the complex relationships between corporate governance, environmental strategies, and the enduring success of publicly traded companies. Through empirical analysis, the study explores how adopting diverse sustainability measures influences stakeholder involvement, board structure, and shareholder value creation. This study combines an extensive dataset of financial information from listed companies with a quantitative examination of corporate governance practices. It also incorporates detailed case studies of leading firms implementing noteworthy environmental strategies. The study uses correlation analysis to assess environmental strategies' influence on corporate governance dynamics and long-term performance within this sector. The study highlights a positive correlation between robust environmental strategies and enhanced corporate governance practices. These include heightened board diversity, increased stakeholder engagement, and strengthened risk management frameworks. Notably, the study establishes a strong link between proactive sustainability efforts and outstanding long-term financial performance, as evidenced by key performance indicators such as return on equity and total shareholder return.

The Effect of Profitability, Liquidity, Institutional Ownership, and Managerial Ownership on Capital Structure

This study aims to obtain empirical evidence on the effect of profitability as measured by Return on Assets (ROA), liquidity measured by Current Ratio (CR), institutional ownership, and managerial ownership on capital structure. The population of this study is companies listed as consumers of the non-cyclical sector on the IDX in 2018-2022, as many as 113 issuers. The method used is a quantitative method with statistical analysis of panel data regression. Capital structure is the dependent variable, and profitability, liquidity, institutional ownership, and managerial ownership are independent variables. The method used is a quantitative method with statistical analysis of panel data regression with the SPSS Analysis tool. Capital structure is a framework that describes how equity and debt are used to finance company operations to generate optimal returns for shareholders and maximize company returns by considering the level of risk. The results showed that partially the Probability (ROA) and Liquidity (CR) were significant to the Capital Structure (DER). Institutional and managerial ownership have no significant effect on the Capital Structure (DER).

Japan’s quest for a sustainable, virtuous circle of growth and innovation

ABSTRACT Large Japanese corporations which have accumulated substantial reserves are now under pressure to spend them, but on what, or on whom? Should they increase their (domestic) capital and R&D expenditure, which languished between 2000 and 2020; or invest more in their employees, whose wages have stagnated; or increase their shareholder returns, which have already surged; or raise executive remuneration closer to overseas counterparts? This article examines tensions in recent developments in Japan’s political economy, from Society 5.0 to Kishida’s ‘new form of capitalism’ and Keidanren’s ‘rebuilding the middle class’, from the perspective of these dilemmas.

How exponential organizations outcompete(d) their traditional counterparts (in the past eight years)?

Purpose Exponential organizations (ExOs) are purpose-driven companies that leverage exponential technologies and exponential business practices to grow and scale rapidly, transform industries and create massive value and impact. In contrast, non-ExOs follow a linear approach to business and organizational strategy design and execution. This study aims to validate the hypothesis, based on financial metrics, that ExOs outperform their competitors and linear counterparts. Furthermore, it also brings a new understanding of the gap raised in the past eight years about how ExOs can achieve significantly better performance, measured with financial metrics. Design/methodology/approach For measuring how exponential an organization is, this study elaborated a completely new assessment tool called Exponential Quotient (ExQ). This study applied ExQ to the 100 largest US headquartered companies as ranked by Fortune magazine in 2014. Calculating the ExQ enabled this study to rank these Fortune 100 companies and identify the most and the least exponential firms. This study tracked these companies as to how they performed on different financial metrics over the eight years of 2014–2021 and analyzed the results. Findings Through the analysis, this study revealed that the top 10 ExOs have significantly outperformed their bottom 10 non-exponential peers, delivering 40x higher shareholder returns, 2.6x better revenue growth, 6.8x higher profitability and 11.7x better asset turnover. Furthermore, this study could identify commonalities and similarities between the two groups. This means that ExOs can thrive even in tough times and that accelerating technologies unlock abundance and allow every organization to become a disruptive innovator and stay ahead of the competition. These are novel results in the research focusing on the gap between exponential and traditional organizations. Research limitations/implications Using the ExQ diagnostics tool, every organization can see how flexible, scalable and agile they are, which is the starting point for an exponential transformation program. Although this approach has already found its way into practice and is applied globally by thousands of organizations (startups, scaleups and incumbents), so far, the academic establishment is in its nascent phase. With this research, the authors wanted to extend this field of science. On the other hand, because of its novelty, no appropriate previous studies existed to compare the results. Practical implications The possible implications showed that there is a plannable way for significantly increasing an organization’s ExQ and advance it from a linear toward an exponential organizational model. Originality/value The results validated the robustness of the ExO framework and philosophy and shed light on the importance of exponential transformation – a proven method to increase an organization’s ExQ. This framework is not a “how to be successful” guide. Instead, it uncovered some of the previously unknown and universal mechanisms of scalability – which, in turbulent times, make companies successful (based on financial metrics). To the best of the authors’ knowledge, this study was among the first kind of in-depth analyses to validate the whole ExO model.

Financial Performance of BUMN Go Public on The Indonesian Stock Exchange on Company Value

This research aims to analyze company performance based on the financial aspects of BUMN: Return On Equity, Return On Investment, Cash Ratio, Current Ratio, Collection Periods, inventory turnover, total asset turnover, ratio of own capital to total assets of BUMN companies go public listed on the Indonesian Stock Exchange on company value. The research period is 5 years, namely the 2018-2022 period. This study uses a quantitative approach. This research method uses panel data regression analysis with a research period of 2018-2022 with estimates ordinary least square (OLS), random effect model (REM), and fixed effect model (FEM), and the population used in this research was 114 BUMN companies and the sampling method was using samples with certain criteria. The sample used was 23 BUMN go public companies listed on the Indonesia Stock Exchange. The research results show that shareholder returns (ROE) have a significant positive effect on company value. Cash ratio, current ratio, Return on Investment, Inventory Turnover, Collection Periods, total asset turnover and the ratio of own capital to total assets do not have a significant effect on company value.