Shareholder Corporate Governance Research Articles

Multiple large shareholders, agency problem, and firm innovation

AbstractThis paper, in the context of agency problem, examines the impacts of multiple large shareholders on firm innovation. A dataset of non‐financial listed firms in China was established from 2007 to 2019. Innovation is divided into innovative quantity and innovative quality. The results demonstrate that multiple large shareholders can trigger innovative quantity and improve innovative quality. Multiple large shareholders restrict excessive earnings management and optimize pay gap by top manager to support innovation. It also finds that multiple large shareholders have a positive impact on firm's innovation through reducing share pledge and tunneling action of controlling shareholders. Moreover, it is also confirmed that better information environment and legal framework contribute to the positive effect of multiple large shareholders in corporate governance, along with firm innovation superior.

Minority shareholders’ participation and corporate green innovation

In recent years, the Internet has greatly reduced the cost of minority shareholders to obtain information, and has also enabled them to participate in corporate governance more conveniently and effectively. Based on the data of China’s A-share listed companies from 2011 to 2020, this paper examines the impact of minority shareholders’ participation in corporate governance on corporate green behavior. The study found that the minority shareholders can effectively promote green innovation in enterprises. This conclusion still holds true after robustness tests such as replacement variables, multiple fixed effects, addition of omitted variables, and propensity score matching test. Further research finds that state-owned enterprises and non-heavy polluting industries, the participation of minority shareholders in corporate governance will have a more significant role in promoting green innovation. This paper not only enriches the research on minority shareholders of listed companies and green behavior, but also has important theoretical and practical significance for minority investors to protect their own rights and interests.

The Role and Effect of Institutional Shareholders in Corporate Governance

The Role and Effect of Institutional Shareholders in Corporate Governance

Koncentracja własności i kontroli a wyniki spółek notowanych na Giełdzie Papierów Wartościowych w Warszawie

Purpose – The purpose of the research is to investigate the links between concentration of ownership and control of analysed companies and the value of their financial and market performance, as well as to test whether this performance depends on the presence of owners of large, but non -controlling blocks of votes among shareholders. Research method – The article presents an analysis of data contained in financial statements and Management Board’s reports. Pearson’s correlation coefficient, one -way ANOVA test and Kruskal -Wallis test were also used to investigate the links between concentration of ownership and control of analysed companies and the value of their financial and market performance.Results – The conducted studies showed theconcomitance of concentration of owner-ship and control in hands of shareholders holding over 5% of votes at the general meeting and the financial performance in the analysed entities.The research also showed that the relation between the market value of shares and their book value in companies in which shares of two largest shareholders were the same or comparable was higher than in entities in which a difference between these shares was observed. Moreover, ownership and control structure in such entities allowed them for a better use of resources.Originality / value / implications / recommendations – The article emphasises not only the role of ownership and control concentration as regards the value of financial and market performance of companies, but also presents the desired scope of concentration in the hands of the individual shareholders. It draws attention to the role of large, but non -controlling shareholders in corporate governance, especially in the mitigation of the horizontal agency conflict.

The missing role of controlling shareholders in the short-termism debate

The missing role of controlling shareholders in the short-termism debate

The myth of a central role by institutional shareholders in corporate governance

The need for transparent and high standards of corporate governance is expressly highlighted in s 7 of the Companies Act 71 of 2008. There has been a wide call by those concerned with corporate governance for institutional investors to take a central role in ensuring corporate governance reform is successfully achieved. A number of concerns are highlighted that stand in contrast with this expectation of institutional investors taking on such a lead role. These concerns relate to competition in the investment market, performance incentives, short-termism, unwarranted interference with director authority, lack of expertise, the burden of investment and existing statutory mechanisms making this expectation unrealistic and a potential for more problems rather than a solution.

Multiple large shareholders and bank stability: the case of MENA banks

PurposeThis study aims to investigate how multiple large shareholders individually and interactively influence Middle East and North Africa (MENA) bank stability.Design/methodology/approachThe empirical framework is based on a generalized dynamic two-step system and utilizes the method of moments estimation to analyze a panel dataset of 532 bank-year observations over the 2004–2017 period.FindingsThe estimation results show that large shareholders are crucial in explaining the differences in bank stability among MENA banks. Specifically, the first- and second-largest shareholders exacerbate bank instability. However, we found that the third-largest shareholder enhances bank stability. Additionally, the coalition between the two largest shareholders increases the moral hazard problem in MENA banks and significantly decreases stability. Meanwhile, the interaction between the three largest shareholders is associated with a control contestability problem, which impels better bank stability. The results support the dispersion effect of multiple large shareholders in MENA countries.Originality/valueThe role of large shareholders in corporate governance is widely recognized. However, very little is known about the role and the real impact that multiple large shareholders may have on the banking sector. To the best of the authors' knowledge, this work is the first to analyze the relationship between multiple large shareholders and bank stability in the MENA region.

The Review on the Expansion of Rights of Minority Shareholders in Corporate Governance

The Review on the Expansion of Rights of Minority Shareholders in Corporate Governance

Internal auditor perceptions of corporate governance in Greece after the crisis

PurposeThis paper aims to present the views of internal auditors in Greece on the relation between the internal audit function (IAF) and corporate governance (CG) after several years of European market integration and in the aftermath of the sovereign debt crisis.Design/methodology/approachData are collected using semi-structured interviews with 15 internal auditors working in firms with different size and in different sectors of activity. Interviewees have diverse experience and hold various positions in the firm.FindingsRespondents perceive a strong relation between the IAF and CG. They view the IAF as a preventive tool that provides monitoring and advisory services to firms. They stress the inadequate monitoring role of the board in the IAF, and they support a proactive intervention in the strategic audit planning process. They see a small role for shareholders in CG. They stress the need to focus more on the efficiency and effectiveness considerations in carrying out the IAF. They perceive CG-related information as important for meeting formal compliance needs rather than contributing to decision-making or audit process planning. They believe that audit committees (AC) are weak in implementing effective monitoring, due to inadequate knowledge and expertise of their members. They would like to see a two-way interaction between auditors, AC and management. They would like to enjoy more independence through the implementation of international standards of auditing and statutory regulation.Research limitations/implicationsThe sample covers 15 auditors from an equivalent number of firms and few sectors of activity. Accessing potential interviewees was difficult due to the perceived conflict between their work requirements and public statement of their views.Practical implicationsThe proposed method adds to the qualitative analysis literature with regard to measuring and evaluating the personal views of auditors on CG. The study provides empirical evidence of the need to use extensive qualitative research to assess the auditors’ views on the role of CG for their work.Originality/valueThe role of internal audit in CG effectiveness is a key policy concern, especially in countries with diverse market environments. Greece is such an environment for it has undergone a major institutional change within a short period and suffered greatly from its sovereign debt crisis. Further, few studies have sought and evaluated the views of internal auditors by using semi-structured interviews. The latter provide details, which other methods cannot capture. The results of this study are especially useful to the competent regulators, for they reflect market perceptions on the importance and effectiveness of CG practices. They are also useful to practitioners to identify potential root causes of audit deficiencies.

The role and effect of controlling shareholders in corporate governance

This paper examines two potentially contradictory effects of the presence of controlling shareholders. Controlling shareholders have been shown to be beneficial, as they generally have a long-term interest in the firm and are willing and able to monitor the actions of senior managers closely and decrease agency costs between shareholders and management (agency costs of Type I). However, they are also in a position to expropriate the firm’s assets, especially when they are actively involved in management (agency costs of Type II). More specifically, this article reviews how regulatory and legislative bodies have tried to curb the consumption of private benefits by controlling shareholders while preserving the beneficial aspects of their long-term interest and their monitoring role, the effect controlling shareholders on the application and effectiveness of corporate governance best practices as well as on the executive and board member remuneration.

Corporate Governance and Shareholder Activism in India—Theoretical Perspective

The origin of division of powers between Board of Directors and Shareholders has been subject of different judicial interpretations. Company law is a standard federal law. Hence, it envisages a clear division of powers between Shareholders and Board of Directors. The purpose of this paper is to analyse the methods and role envisaged for shareholders in corporate governance, given the little incentives and limited means available to them to perform any supervisory function over Board of Directors. The study reports, that it is difficult to tie down any definite role for investors in corporate governance. Corporate governance ought to shift from being a procedural requirement when it comes to addressing the issue of shareholder activism. An implication of the study is to put emphasis for enforcement of shareholder rights through civil proceedings. This can be achieved by introducing substantive provisions codifying duty of care, fiduciary role-playing requirements for Board of Directors.

Corporate governance reforms and political partisanship: an empirical analysis in 16 OECD countries

This paper explores the determinants of pro-minority shareholder corporate governance reforms. Using a Cox conditional model in gap time, this paper provides new empirical evidence on the linkages between the adoption of pro-minority shareholder corporate governance reforms at the firm level and government ideological affiliation in 16 OECD countries over the period 1970–2009. I find strong evidence linking rightward shifts in government ideological orientation with the adoption of minority shareholder protection legislation. This result supports our argument that changes in the composition of the coalition of heterogeneous interests and/or a change in the expectations of the parties’ constituency will affect government strategy on the adoption of pro-minority shareholder corporate governance reforms. I also find that the macroeconomic context at the international level may influence the adoption of these reforms. Our findings suggest that international economic integration has resulted not in the convergence of corporate governance regimes to the Anglo-Saxon model, but rather the emergence of hybrid corporate governance systems.

Economic incentives of family controlling shareholders and the monitoring role of non-dominant large shareholders in corporate governance: Evidence from the manufacturing firms in Malaysia

This article explores the economic incentives of dominant controlling shareholders with regard to the expropriation of minority shareholders, on the one hand, and the monitoring role of non-dominant large shareholders in family firms, on the other. The authors argue that family controlling shareholders (or family owners) do not share common interests with other shareholders. Drawing on 141 family firms in the manufacturing sector that were listed on Bursa Malaysia (the Malaysian stock exchange) from 2003 to 2006, the article finds an inverted U-shaped relationship between excess control rights and a firm's market performance. The findings also show that both the cash flow rights (i.e. claims on cash payouts) of family controlling shareholders and the presence of non-dominant large shareholders with the ability to contest control of the firm have a positive relationship with market performance. This study contributes to the literature by indicating that family owners are unlikely to collude with other large shareholders to expropriate minority shareholders. Furthermore, low levels of excess family-owner control rights are beneficial for market performance because firms may benefit from group affiliations and receive patronage from wealthy owners. However, high levels of excess control rights are understood to be an economic incentive for family owners to expropriate minority shareholders during non-crisis periods.

Shareholder Proposals in the Market for Corporate Influence

The period from 2003 to 2013 shows a remarkable shift in the use and effectiveness of shareholder proposals. Shareholders pursued many different types of proposals over the decade, eight of which are identified in this article as most important to corporate governance. The article then provides evidence on how these proposals were used and voted on by shareholders, helping to provide clarity to the role of shareholders in corporate governance. The evidence presented in this article shows that shareholders are increasingly willing to pursue proposals which enhance the accountability of managers. However, reflecting legitimate concerns with the risk of empowering minority shareholders who do not owe fiduciary duties to their fellow shareholders, voting patterns reveal that shareholders are cautious in how they allocate power. While most shareholders support measures that facilitate managerial discipline, they are more cautious in their support of proposals that empower other investors and augment their influence over managers. This article develops a theory of shareholder voting by suggesting that this behavior reflects shareholder concern over two types of costs. First, the majority of shareholders operate under information cost constraints as diversified investors that generally have significant informational asymmetries with respect to management. Therefore, such shareholders will tend to seek low-cost signals of firm performance, which would predict support for disciplining proposals that allow shareholders to key off basic financial performance measures such as market price; indeed, as other scholars have noted, the majority of shareholders are most interested in defensive, ex-post activism that reduces managerial entrenchment and exposes managers to the market for corporate influence and corporate control. Second, the significantly lower levels of support for empowering proposals may be explained by common agency costs — costs that arise as numerous shareholder-principals seek to influence a single set of manager-agents. The significant empowering proposals identified in the article have a common feature: they all promote shareholder influence in excess of a commensurate economic interest held by the activist shareholder. This raises concerns that activist shareholders will attempt to use their influence to extract private benefits at the expense of the other shareholder-principals. However, most shareholders appear to recognize the threat presented by a common agency in which small block holders are empowered to influence management, and such proposals receive significantly less support.

Role of Institutional Shareholders in Malawi - Case Study for TNM Limited

The Role of Institutional Shareholders in Corporate Governance is quite controversial. There however appear to be a global consensus that Institutional Shareholders have ability to promote corporate governance in companies they have invested in, because of the following; (1) they normally have larger block of shares and therefore directors are more amenable to their demands; (2) they are likely to enjoy economies of scales in obtaining pertinent information from the number of portfolios they hold substantial shares and therefore significantly reduce the costs of obtaining information; and (3) institutional investors attract indirect monitoring as more analysts are attracted to evaluate firms which attract institutional shareholders and therefore able to indirectly access expert input. Institutional shareholders in Malawi comprise of pension funds, insurance companies, banks, specialised institutional investors and various financial institutions. Their role in matters of corporate governance in Malawi is likely to increase because of the enactment of Financial Services Act 2010 as well as Pension Act 2011. The results of this independent study however demonstrates that Institutional Shareholders of TNM Limited have demonstrated little effort to undertake corporate governance issues of the company primarily because of vested interest in insider deals which can yield more income when compared to dividend. There is a conflict of interest to monitor the actions of the board of directors as the directors are directed by the institutional shareholders to undertake specific transactions. Hence directors cannot be accountable to the institutional shareholders. The resultant could be lower dividends for the non-controlling (minority) interests who will find it not worthwhile to buy or hold on to TNM Shares because of low returns. The Malawi Stock Market is likely to be illiquid due to low interest from the general public to undertake calculated risk on the TNM Shares. This is likely to have spillage effect on all other shares traded on the Malawi Stock Exchange if similar trend is observed. The Institute of Directors in Malawi and National Corporate Governance Review Committee should undertake an exercise of coming up with the code specific to the institutional shareholders in Malawi to address the current weaknesses.

Dodd-Frank's Say on Pay: Will it Lead to a Greater Role for Shareholders in Corporate Governance?

Say on gives shareholders an advisory vote on a company's pay practices for its top executives. Beginning in 2011, Dodd-Frank mandated such votes at public companies. The first year of say on under the new legislation may have changed the dialogue and give-and-take in the shareholder-management relationship at some companies, particularly on the question of executive pay. We study the evolution of shareholder voting on say on - beginning in 2006 as a fledgling shareholder movement to get say on on the corporate ballot, evolving as a handful of companies and later the financial firms receiving TARP funds conducted say on votes, and leading to Dodd-Frank’s extension of the process to all public companies. Using results from an empirical analysis of data from the pre-Dodd-Frank period, we project that the new mandatory management-sponsored “say on pay” proposals will attract strong shareholder support at most companies, while poorly performing companies with high pay levels can expect shareholder dissent. These projections are confirmed by early results in the first year of post-Dodd-Frank experience with “say on pay.” Our empirical analysis of the pre-Dodd-Frank data supports the potential importance of third party voting advisor recommendations, particularly by the ISS, on executive pay proposals. The raw data show 20 percent swing in shareholder support for management “say on pay” proposals associated with a negative ISS recommendation. However, once we take into account the different recommendations issued by management and ISS, the net effect of an ISS negative recommendation on the overall shareholder vote is relatively small at most companies. Nevertheless, the early Dodd-Frank results show that all 37 companies that failed to obtain majority support in these advisory votes had received negative ISS recommendations. The early results show that companies that initially received negative “say on pay” recommendations by the ISS often modified their disclosure filings or changed their pay practices. This may indicate to a growing role for shareholders in influencing executive pay practices and more generally corporate governance.

The corporate governance of financial-stock management: Utility function, motivation and management culture

With the rise of managerial capitalism, the utility function of managers has undergone some changes compared to that theorized by the economic doctrine and detectable in profit maximization. Later theories, such as those of Marris, Baumol, Williamson, linked to the development of managerial capitalism have emphasized that the management function is polymorphous and multi-oriented and the goals of top management are not always aligned with those of the owners. In recent years, the claim of the equity-management has allowed not only the return of shareholders in corporate governance, but also the affirmation of maximizing the market value of company shares as a new target of managers. In this view, the interests of managers are converging with those of the owner-investors; the capital and the maximization of profit are the centre of attention and value of company shares in a short period. This gives rise to a degenerative phenomenon of the entrepreneurial paradigm represented by irresponsible operations in finance exclusively linked to short-term and not to the values and expectations of corporate stakeholders. The action of the managers, according to the principal-agent theory generates a strong conflict in relationships with stakeholder groups that are rarely considered in spite of the maximization of the interests of shareholders. This contribution, in light of the above considerations, aims to analyze the utility function of managers in the modern capitalist system, in order to identify a theoretical reference model based on alternative motivations with respect to the source of the social phenomenon of irresponsibility or forms of insincere social responsibility that mask the real objective of maximizing profit. The analysis within large corporations, starting with the conceptualization of the principal-agent theory can be used to analyze not only the theoretical model of reference for the corporate governance, but also to understand which factors have led to inefficiency and which are the ones that represent the indispensable basis. We conclude by saying that the managerial utility function should not disregard from the strategy of sincere social responsibility, from the perspective of evaluating business strategies of medium- long term, from the achievement of a congruous profit and from the satisfaction of corporate stakeholders needs in different levels.

Shareholder Activism in the Obama Era

The financial crisis of 2008 and the ascendancy of the Democratic Party in Washington have created an environment in which proponents of expanded shareholder corporate governance rights are making considerable progress. Even before the crisis hit, of course, there had been a number of efforts to extend the shareholder franchise, principally so as to empower institutional investors. The crisis, however, has given them new momentum. The logic behind the shareholder empowerment project is that institutional investors will behave quite differently than dispersed individual investors. Because they own large blocks, and have an incentive to develop specialized expertise in making and monitoring investments, institutional investors could play a far more active role in corporate governance than dispersed individual investors traditionally have done. Institutional investors holding large blocks thus have more power to hold management accountable for actions that do not promote shareholder welfare. Their greater access to firm information, coupled with their concentrated voting power, might enable them to more actively monitor the firm’s performance and to make changes in the board’s composition when performance lagged. In fact, however, institutional investor activism is rare and limited primarily to union and state or local public employee pensions. As a result, institutional investor activism has not - and cannot - prove a panacea for the pathologies of corporate governance. Activist investors pursue agendas not shared by and often in conflict with those of passive investors. Activism by investors undermines the role of the board of directors as a central decision-making body, thereby making corporate governance less effective. Finally, relying on activist institutional investors will not solve the principal-agent problem inherent in corporate governance but rather will merely shift the locus of that problem.

Proxy Access and the Internet Age: Using Electronic Shareholder Forums to Improve Corporate Governance

On November 28, 2007, the SEC voted to amend federal proxy rules in two ways. The first amendment clarified the SEC’s stance that corporations may exclude shareholder proposals for nominees to the company’s board of directors from the company’s proxy materials. The second amendment was designed to encourage the use of electronic communications between companies and investors. These SEC actions constituted a partial response to a longstanding debate concerning the role of shareholders in corporate governance. This Note argues that innovative uses of web-based technology could resolve many contentions issues concerning shareholder participation in corporate elections and ultimately improve the quality of corporate board elections from the perspective of corporate boards and shareholders. Despite their early state of development, electronic shareholder forums present corporations with the clear opportunity for low-cost, beneficial interaction with shareholders. With a proper investment of time and due consideration, electronic communications with shareholders stand to improve corporate performance without dramatically altering structures of corporate governance.

Stakeholders vs. Shareholders in Corporate Governance

The paper is divided in two coordinate parts. The first considers in general the issue of stockholders vs. stakeholders oriented governance systems and their relative merits and demerits. The second part deals specifically with the issue of the principal-agent problem in a stakeholder context.