The Mutual Friend: Dual Holder Monitoring and Firm Investment Efficiency

2019 ◽  
Vol 9 (1) ◽  
pp. 81-115
Author(s):  
Miguel Antón ◽  
Luca X Lin
Keyword(s):  
Cash Flow ◽  
High Growth ◽  
Investment Efficiency ◽  
Firm Investment ◽  
Control Rights ◽  
Debt Overhang ◽  
Equity Value ◽  
Growth Firms ◽  
Editorial Decision ◽  
And Control

Abstract We investigate the influence of simultaneous equity holdings by creditors (dual holders) on investment efficiency. Such creditors have stronger incentives and power to monitor firm investment as they have cash flow and control rights from both debt and equity sides. We provide evidence that dual holders, particularly noncommercial bank dual holders, significantly mitigate overinvestment. For high growth firms and those subject to debt overhang, dual holders also alleviate underinvestment. Equity value increases at the presence of dual holders. Our results indicate that by improving firm investment efficiency, dual holders not only make creditor investments safer but also create value for shareholders. Received March 26, 2019; editorial decision September 17, 2019 by Editor Isil Erel.

Does the preference of family board seats allocation influence corporate investment efficiency?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Chun Su ◽  
Xing Liu ◽  
Huan Shao
Keyword(s):  
Cash Flow ◽  
Family Firms ◽  
Corporate Investment ◽  
Altruistic Behavior ◽  
Investment Efficiency ◽  
Control Rights ◽  
Content Type ◽  
Law System ◽  
And Control ◽  
The Relationship

Purpose This paper aims to investigate the influence of over-allocation and under-allocation of family board seats on the corporate investment efficiency. Design/methodology/approach Based on the perspective of altruistic behavior, this paper theoretically analyzes the relationship between the preference of family board seats allocation and corporate investment efficiency, and designs the research. On this basis, we use STATA14.0 as an analysis tool to empirically test the relationship between the preference of family family board seats allocation and corporate investment efficiency, and consider the impact of different governance scenarios. Findings This study finds that firms with a higher over-allocation degree of family board seats invest more efficiently, evidenced by significantly suppressed over-investment rather than mitigated under-investment. However, we do not find evidence that the higher degree of under-allocation of family board seats contribute to lower corporate investment efficiency. Additionally, this study finds that the positive relationship between the over-allocation degree of family board seats and corporate investment efficiency is more pronounced for firms with higher separation of cash flow rights and control rights, and weaker regional law system environment. Our mechanism discussion shows that the higher over-allocation level of family board seats contributes to the mitigation of agency costs for family firms by reducing the tendency for non-family boards to vote “against board proposals” and the appropriation behavior of the controlling family, and eventually improving corporate investment efficiency. Originality/value This paper examines the relationship between the preference of family board seats allocation and corporate investment efficiency from the perspective of altruistic behavior. Unlike previous studies, this paper distinguishes the governance effects arising from over-allocation and under-allocation of family board seats. Additionally, different governance scenarios are incorporated into the decision-making mechanism of the board of family firms, and the influences of the divergence of cash-flow and control rights and a weaker regional law system on the governance effect of the preference of family board seat allocation are analyzed.

scholarly journals Leverage and firm investment: the role of information asymmetry and growth

2019 ◽  
Vol 27 (1) ◽  
pp. 56-73 ◽  
Author(s):  
Albert Danso ◽  
Theophilus Lartey ◽  
Samuel Fosu ◽  
Samuel Owusu-Agyei ◽  
Moshfique Uddin
Keyword(s):  
Information Asymmetry ◽  
High Growth ◽  
Firm Investment ◽  
Financial Leverage ◽  
Content Type ◽  
Growth Firms ◽  
The Impact ◽  
The Relationship ◽  
Role Of Information

PurposeThis paper aims to demonstrate how financial leverage impacts firm investment and the extent to which this relationship is conditional on the level of information asymmetry as well as growth.Design/methodology/approachThe paper relies on data from 2,403 Indian firms during the period 1995-2014, generating a total of 19,544 firm-year observations. Analysis is conducted by using various panel econometric techniques.FindingsDrawing insights from agency theories, the paper uncovers that financial leverage is negatively and significantly related to firm investment. It is also observed that the impact of financial leverage on firm investment is significant for high information asymmetric firms. Finally, the paper shows that the relationship between leverage and firm investment is significant for low-growth firms. However, no significant relationship is found between leverage and investment for high-growth firms.Originality/valueThis paper provides fresh evidence on the leverage–investment nexus and, to the authors’ knowledge, it the first paper to examine the extent to which this leverage–investment relationship is driven by the level of information asymmetry.

High-growth firms and the use of formalised planning and control systems

2014 ◽  
Vol 13 (3) ◽  
pp. 266 ◽  
Author(s):  
Leona Achtenhagen ◽  
Anders Melander ◽  
Alexandra Rosengren ◽  
Andrea Standoft
Keyword(s):  
Control Systems ◽  
High Growth ◽  
Planning And Control ◽  
Growth Firms ◽  
And Control

Dual-Class Shares and Audit Pricing: Evidence from the Canadian Markets

2008 ◽  
Vol 27 (2) ◽  
pp. 199-216 ◽  
Author(s):  
Samer Khalil ◽  
Michel L. Magnan ◽  
Jeffrey R. Cohen
Keyword(s):  
Cash Flow ◽  
Positive Association ◽  
Audit Fees ◽  
Control Rights ◽  
Audit Pricing ◽  
Audit Risk ◽  
Dual Class Shares ◽  
Cash Flow Rights ◽  
Dual Class ◽  
And Control

SUMMARY: This paper investigates whether audit fees vary with the wedge between cash flow rights and control rights arising from the presence of dual-class share structures. Dual-class shares exist in firms having two or more classes of shares with disproportionate voting rights. They affect audit fees through their effect on the supply for audit services. External auditors conduct wider (narrower) scope audits depending on whether dual-class shares increase (decrease) audit risk and/or auditor business risk. Wider (narrower) scope audits are more (less) costly for the auditors and for their clients. This paper documents a positive association between audit fees and the wedge between cash flow rights and control rights in a sample of Canadian firms during 2004. It extends current research by investigating whether dominant shareholdings affect audit pricing, and by examining audit pricing in Canada over a time period that witnessed significant changes in corporate governance.

Cash-flow and control rights in equity crowdfunding

Crowdfunding ◽  
2020 ◽  
pp. 263-304
Author(s):  
Douglas J. Cumming ◽  
Sofia A. Johan
Keyword(s):  
Cash Flow ◽  
Control Rights ◽  
Equity Crowdfunding ◽  
And Control

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

2012 ◽  
Vol 9 (2) ◽  
pp. 85-93 ◽  
Author(s):  
Hu Dan Semba ◽  
Haiyan Zheng
Keyword(s):  
Firm Performance ◽  
Cash Flow ◽  
Listed Companies ◽  
Negative Influence ◽  
Independent Directors ◽  
Control Rights ◽  
Ownership Structures ◽  
And Performance ◽  
Cash Flow Rights ◽  
And Control

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.

scholarly journals Corporate ownership and control: New evidence from Taiwan

2003 ◽  
Vol 1 (1) ◽  
pp. 87-101 ◽  
Author(s):  
Yin-Hua Yeh
Keyword(s):  
Cash Flow ◽  
Ownership Structure ◽  
Empirical Literature ◽  
Corporate Ownership ◽  
Control Rights ◽  
Controlling Shareholders ◽  
Control Power ◽  
Management Participation ◽  
Cash Flow Rights ◽  
And Control

Recent empirical literature on corporate governance has demonstrated that companies’ shares are generally concentrated in the hands of particular families or wealthy investors. Claessens et al. (2002) analyzed the ownership structure in East Asian eight countries, but misestimated the Taiwanese condition that made them not find the positive incentive or negative entrenchment effects in Taiwan. This study tries to clear the ultimate control in Taiwan, use the detailed data to better understand the ownership structure in Taiwan and investigates the determinants for deviation of control from cash flow rights. Based on the findings, the companies’ shares are common concentrated in the hands of the largest shareholder. We find that the deviation of control from cash flow rights is greater in the family-controlled companies than other type companies. Also the controlling shareholders use more pyramids and cross shareholding to increase their control rights that accompanies with deeply management participation. On the average, the controlling shareholders hold more than half board seats and usually occupy the chairman and general manger to enhance their control power in family-controlled companies. No matter in all sample or family-controlled companies, the controlling shareholders owns significantly less cash flow rights, occupy more board seats in deviation group companies than those without deviation. Corporate valuation is significantly lower in the companies with the divergence of control from cash flow rights than non-deviation companies.

Separation of cash flow rights and control rights and debt among Malaysian family firms

2015 ◽  
Vol 5 (2) ◽  
pp. 184-201 ◽  
Author(s):  
Norhidayah Abdullah ◽  
Wee Ching Pok
Keyword(s):  
Cash Flow ◽  
Family Firms ◽  
Equal Proportion ◽  
Control Rights ◽  
Content Type ◽  
Shareholder Protection ◽  
Cash Flow Rights ◽  
Minority Interests ◽  
And Control ◽  
Debt Policy

Purpose – The purpose of this paper is to examine the relationship of separation of cash flow rights (CFR) and control rights (CR) and debt policy of Malaysian listed family firms. Design/methodology/approach – The sample of this study consists of 256 observations from companies listed in the Main Board of Bursa Malaysia for the period between year 2005 and 2009. The multivariate ordinary least square regressions have been conducted in order to examine the relationships between separation of CFR and CR and debt. Findings – The study reveals that the separation of CFR and CR does not lead to the increase of debt policy among Malaysian listed family-owned firms. Thus, the results suggest there is no expropriation of minority interests in Malaysian family-owned firms. The plausible reason is that Malaysia has better investor or shareholder protection laws compared to other emerging markets such as Indonesia, Thailand and Philippines. Research limitations/implications – The first limitation is the underestimation of CFR and CR because the affiliated business of unlisted firms and foreign companies are excluded. The second limitation is the presence of 100 percent ownership in firms controlled by family-owned firms or in firms that are controlled by another firms which are under the controlled of family-owned firms, or both, will lead to equal proportion of CFR and CR. Thus, the degree of separation of CFR and CR of such firms are indeterminable. Originality/value – This paper investigates the expropriation of minority interests by Malaysian family-owned firms on which has not been explored.

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