scholarly journals Effects of ownership structure on the mergers and acquisitions decisions in Brazilian firms

2019 ◽  
Vol 55 (2) ◽  
pp. 227-245
Author(s):  
Nasaré Vieira Nogueira ◽  
Luiz Ricardo Kabbach de Castro
Keyword(s):  
Ownership Structure ◽  
Conflicts Of Interest ◽  
Ownership Concentration ◽  
Minority Shareholders ◽  
Controlling Shareholder ◽  
Content Type ◽  
Controlling Shareholders ◽  
Future Studies ◽  
Shareholder Protection ◽  
Use Of Resources

Purpose The purpose of this study is to examine the effects of ownership structure on merger and acquisition (M&A) decisions of Brazilian listed companies. Design/methodology/approach This paper is an applied and explanatory research based on secondary data. The sample is comprises non-financial companies listed on the BM&FBovespa between 1998 and 2007. Considering that the dependent variable is binary, the authors estimate panel data logistic regression models. Considering the existence of conflicts of interest among those who have the decision-making power and the supplier of capital for M&A transactions, they draw upon the Agency Theory to develop the theoretical hypotheses. Findings The results show that, for a sample of Brazilian non-financial companies listed on the BM&FBovespa (B3), from 1998 to 2007, Brazilian firms present, on average, a highly concentrated ownership structure and the major controlling shareholders are families or the State. These characteristics are negatively related to the likelihood of M&A transactions, as most of these controlling shareholders are reluctant to adopt mechanisms that reduce their control. Research limitations/implications With regard to the limitations, this study considered only the M&A definitions as stated by the Bureau van Dijk database. In this sense, future studies may analyze the effects of ownership structure based on other M&A definitions and typologies. In addition, the study is limited to the period from 1998 to 2007, which is prior to the international financial crisis. Future studies may extend the analysis period to include the post-crisis period (2008) to check if there are differences in M&A strategies before and after the crisis. Practical implications From a managerial perspective, the results show that minority shareholders have little or no influence over an M&A decision, so they cannot decide on the use of resources for fast growth and access to new markets through M&A. Thus, the investment decision must take into account the nature and the quality of the controlling shareholder. Social implications This study shows a significant and negative effect of ownership concentration on the likelihood of M&A transactions. In part, this result demonstrates the importance of understanding the behavior of controlling shareholders before inferring on other key aspects that the M&A literature tends to make fundamental in explaining M&A decisions in publicly traded companies, particularly, in an environment of low minority shareholder protection. Originality/value Previous studies have partly found that the M&A decision is motivated by individual advantages obtained from increasing the size of the firm, or from managerial hubris. The results show that these hypotheses do not hold in the Brazilian context. Moreover, the results indicate that M&A decisions are associated with the characteristics of the controlling shareholder, their level of ownership concentration and their typology, contributing to the agency debate on whether the incentive or the entrenchment effect prevails in the context of the agency problem between controlling and minority shareholders, particularly, in an institutional environment of low shareholder protection.

Corporate ownership concentration and financial reporting quality

2019 ◽  
Vol 17 (1) ◽  
pp. 104-132 ◽  
Author(s):  
Neal Arthur ◽  
Huifa Chen ◽  
Qingliang Tang
Keyword(s):  
Financial Reporting ◽  
Ownership Structure ◽  
Reporting Quality ◽  
Policy Implications ◽  
Ownership Concentration ◽  
Financial Reporting Quality ◽  
Content Type ◽  
Controlling Shareholders ◽  
Country Level ◽  
Important Extension

Purpose The purpose of this study is to investigate whether a country’s ownership concentration affects the financial reporting quality in a cross-country setting. Design/methodology/approach This paper uses six accounting and auditing indicators to construct a comprehensive index to measure the country-level financial reporting quality. Findings The authors find a non-linear nature of the relationship between the national financial reporting quality and national ownership structure. Specifically, the relation is negative in a relatively spread ownership structure with no controlling shareholders, implying the entrenchment effects dominate. When ownership is highly concentrated, particularly with controlling shareholders whose interest is aligned with that of the firm, the relation turns to positive and alignment effects dominate. Originality/value The study is an important extension of prior research examining the financial reporting quality effect of ownership concentration. It enhances the understanding of the role of ownership concentration in determining a country’s financial reporting quality and has potential important policy implications for countries’ reformers and regulators who are concerned with the transparency of financial reporting and the quality of corporate governance.

Groups of Companies

2015 ◽  
Author(s):  
Klaus J. Hopt
Keyword(s):  
Creditor Protection ◽  
Minority Shareholders ◽  
Banking Competition ◽  
Controlling Shareholder ◽  
Controlling Shareholders ◽  
Shareholder Protection ◽  
International Convergence ◽  
The Uk ◽  
Regulatory Models ◽  
Group Law

Groups of companies are common. The empirical data are heterogeneous. Agency problems arise between the controlling shareholder and the minority shareholders and between the shareholders and the creditors. Three regulatory models exist: regulation by general corporate and/or civil law (prototype: the UK); regulation by special group law (prototype: Germany); and regulation by areas of the law such as banking, competition, and tax. The main strategy is mandatory disclosure and group accounting. Related party transactions (including conflict of interest and tunneling) are dealt with by disclosure and consent requirements. In addition, appropriate standards for directors and controlling shareholders (corporate governance) have been developed. They become stricter, if insolvency is approaching. The concept of the shadow director extends liability to the controlling shareholder. Other mechanisms for creditor protection are indemnification, veil-piercing, subordination and substantive consolidation. A fair amount of international convergence exists as to shareholder protection, but not as to creditor protection.

scholarly journals Shareholder protection and bank board quality - an international perspective

2012 ◽  
Vol 9 (4-4) ◽  
pp. 418-428 ◽  
Author(s):  
Hugh Grove ◽  
Lisa Victoravich ◽  
Tracy Xu
Keyword(s):  
Boards Of Directors ◽  
Legal Protection ◽  
The United States ◽  
Ownership Concentration ◽  
Legal Responsibility ◽  
Minority Shareholders ◽  
Controlling Shareholders ◽  
Shareholder Protection ◽  
The Us

This study analyzes the quality of banks’ boards of directors across Europe and the United States (US). We investigate the interactions between the legal protection of investors and ownership concentration to explain the quality of boards at 190 of the largest publicly-traded US and European banks in 2005, well before the unraveling of the financial crisis in 2008. Overall, our results show that in Europe, where legal protection of shareholders is lower than the US, the quality of boards is lower when ownership is more concentrated. Since there are lower expected costs of conflicts with minority shareholders in Europe, the controlling shareholders maximize their own interests by promoting a board of lower quality. In contrast, since there are higher expected costs of conflicts with minority shareholders in the US, the controlling shareholders promote a board of higher quality, thereby limiting their legal responsibility in case of conflicts. Thus, the quality of the board depends upon the interaction between institutional factors (investor protection) and firm-specific characteristics (ownership concentration).

Ownership structure and dividend policy in Indonesia

2016 ◽  
Vol 10 (3) ◽  
pp. 230-252 ◽  
Author(s):  
Doddy Setiawan ◽  
Bandi Bandi ◽  
Lian Kee Phua ◽  
Irwan Trinugroho
Keyword(s):  
Ownership Structure ◽  
Family Firms ◽  
Ownership Concentration ◽  
Board Structure ◽  
Minority Shareholders ◽  
Dividend Payout ◽  
Content Type ◽  
Negative Effect ◽  
The Impact ◽  
Positive Effect

Purpose This research aims to examine the effect of ownership structure on dividend policy using the Indonesian context. The most common ownership structure is concentrated in the hand of family owners except in the UK and USA (La Porta et al., 1998, 2000). Family owners hold more than half of the companies in Indonesia (Carney & Child, 2013; Claessens et al., 2000). Family firms play an important role in Indonesia. Another important characteristic that emerges is the rise of government- and foreign-controlled firms in Indonesia. Thus, this research also divides ownership concentration into family firms, government-controlled and foreign-controlled firms. Design/methodology/approach Samples of this research consist of dividend announcements during 2006-2012 in Indonesian Stock Exchange. This research excluded financial data because these have characteristics that are different non-financial sectors’ characteristics. The final sample of this research consists of a 710 firm-year observation. Findings The result of this research shows that ownerships have a positive effect on dividend payout. This research divides the sample into family-controlled firms, government-controlled firms (GOEs) and foreign-controlled firms. This research shows that government- and foreign-controlled firms have a positive impact on dividend payout. However, family firms have a negative effect on the dividend payout. Family firms pay lower dividends because they prefer to control it themselves. Family firms earn benefit from those resources, but at the expense of minority shareholders. Thus, family firms engage in expropriation to minority shareholders. Research limitations/implications This study focuses on ownership structure of Indonesian listed firm. This study does not analyze the impact of other corporate governance mechanism such as board structure on dividend decisions. The owner of the companies (family, government and foreign firm) has an opportunity to put their member as part of board members. However, this study does not analyze the impact of board structure on dividend decisions. Originality/value This study provides evidence that ownership concentration positively affects dividend payout. However, there is a different effect of ownership structure (family-controlled firms, GOEs and foreign-controlled firm). Government- and foreign-controlled have a positive effect; however, family-controlled firm have a negative effect on dividend payout. Therefore, this study provides evidence of the importance of ownership structure on dividend decision.

Controlling shareholders' stock pledges and strategic change: the moderating effects of corporate governance

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Xi Zhong ◽  
He Wan ◽  
Qiuping Peng
Keyword(s):  
Fixed Effects ◽  
Family Firms ◽  
Strategic Change ◽  
Balance Of Power ◽  
Controlling Shareholder ◽  
Analyst Coverage ◽  
Content Type ◽  
Controlling Shareholders ◽  
Change Behavior ◽  
Negative Effect

PurposeThe authors analyze the effects of controlling shareholders' stock pledging on firms' strategic change behavior, and investigate how the balance of power between shareholders and analyst coverage moderates those effects.Design/methodology/approachEmploying fixed effects models, the authors test hypotheses based on Chinese listed company data from 2011 to 2017.FindingsControlling shareholders' stock pledges has a negative effect on strategic change. As the balance of power among shareholders and/or analyst coverage increases, it mitigates the effect of controlling shareholder stock pledges on strategic change. In particular, the balance of power between shareholders and analyst coverage weakened the relationship between controlling shareholder stock pledges and strategic change. Lastly, after distinguishing family from nonfamily firms, the authors discovered that these findings only held for family firms.Originality/valueThis study makes important contributions to strategic change, stock pledge and family firm literature, and also provides guidance on firms' strategic change practices.

Global financial crisis, ownership structure and firm financial performance

2017 ◽  
Vol 34 (4) ◽  
pp. 447-465 ◽  
Author(s):  
Ali Salman Saleh ◽  
Enver Halili ◽  
Rami Zeitun ◽  
Ruhul Salim
Keyword(s):  
Financial Crisis ◽  
Financial Performance ◽  
Ownership Structure ◽  
Family Firms ◽  
Global Financial Crisis ◽  
Ownership Concentration ◽  
Financial Leverage ◽  
Content Type ◽  
Crisis Period ◽  
The Global Financial Crisis

Purpose This paper aims to investigate the financial performance of listed firms on the Australian Securities Exchange (ASX) over two sample periods (1998-2007 and 2008-2010) before and during the global financial crisis periods. Design/methodology/approach The generalized method of moments (GMM) has been used to examine the relationship between family ownership and a firm’s performance during the financial crisis period, reflecting on the higher risk exposure associated with capital markets. Findings Applying firm-based measures of financial performance (ROA and ROE), the empirical results show that family firms with ownership concentration performed better than nonfamily firms with dispersed ownership structures. The results also show that ownership concentration has a positive and significant impact on family- and nonfamily-owned firms during the crisis period. In addition, financial leverage had a positive and significant effect on the performance of Australian family-owned firms during both periods. However, if the impact of the crisis by sector is taking into account, the financial leverage only becomes significant for the nonmining family firms during the pre-crisis period. The results also reveal that family businesses are risk-averse business organizations. These findings are consistent with the underlying economic theories. Originality/value This paper contributes to the debate whether the ownership structure affects firms’ financial performance such as ROE and ROA during the global financial crisis by investigating family and nonfamily firms listed on the Australian capital market. It also identifies several influential drivers of financial performance in both normal and crisis periods. Given the paucity of studies in the area of family business, the empirical results of this research provide useful information for researchers, practitioners and investors, who are operating in capital markets for family and nonfamily businesses.

Controlling Shareholders: Issues and Challenges for Shareholders’ Empowerment in Directors’ Remuneration in Corporate Malaysia

2014 ◽  
Vol 9 (1) ◽  
Author(s):  
Shanthy Rachagan ◽  
Aiman Nariman Mohd Sulaiman
Keyword(s):  
Emerging Economies ◽  
Ownership Structure ◽  
Self Regulation ◽  
Developed Countries ◽  
Interesting Case ◽  
Minority Shareholders ◽  
Controlling Shareholders ◽  
Legal Rules ◽  
Current Reform

AbstractCurrent reform concerning directors’ remuneration relies on improving legal rules and self-regulation to minimise expropriation of minority shareholders. These have prominently focussed on empowering shareholders. Nonetheless, it is unclear as to the extent these reform proposals are compatible within the concentrated shareholding structure. Some of the reforms taking place in developed countries are suited for dispersed shareholding structure and thus transplanting them to emerging economies with concentrated shareholders may be ineffective. Malaysia poses an interesting case study, especially to countries with similar ownership structure as the concentrated shareholding structure raises different agency problems. The issue of protection of minority shareholder rights and the prevention of abuse of the controlling power by paying excessive remuneration to the executives is therefore a subject of due consideration in Malaysia and countries with similar shareholding structures. This article recommends that Malaysia and other emerging countries look into encouraging limited shareholder empowerment in tandem with laws.

Deposits structure, ownership concentration and corporate governance disclosure in GCC Islamic banks

2018 ◽  
Vol 9 (4) ◽  
pp. 587-606 ◽  
Author(s):  
Rihab Grassa
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Far East ◽  
Policy Implications ◽  
Ownership Concentration ◽  
Islamic Banks ◽  
Content Type ◽  
Gcc Countries ◽  
Transparency And Disclosure ◽  
Governance Disclosure

Purpose This paper aims to assess the effects of deposits structure and ownership structure on the GCC Islamic banks’ corporate governance disclosure (CGD) practices. Design/methodology/approach The study is based on a sample of 38 Islamic banks operating in five Gulf Cooperation Council (GCC) countries, and the authors observed them over the period from 2006 to 2011. The authors used the transparency and disclosure score, developed by Standard & Poor’s (S&P), to identify the sample’s CGD scores. Findings This paper’s findings suggest that the level of CGD is lower for Islamic banks with higher ownership concentration, for levered Islamic banks and for Islamic banks with greater concentration of nonprofit-sharing investment accounts (PSIA) and is higher for Islamic banks with greater concentrations of PSIA; the Islamic bank size; the bank age; listed bank and the country transparency index. By disaggregating the total CGD into the three sub-categories, the authors are able to specify, also, the components of corporate governance (CG) impacted by various determinants. Research limitations/implications This paper is subject to a number of limitations. First, there is manual scoring of annual reports (subjectivity). Second, the research focuses exclusively on the GCC context and excludes the other Middle East, Southeast Asia and Far East countries, where ownership structure and deposits structure might affect CGD differently. Third, the governance score, which is used in this research, is developed by S&P and does not take into account the characteristics of Islamic banks. Practical implications The findings of this paper suggest many policy implications. First, through the optimization of ownership structure, GCC countries’ regulators have to improve the Islamic banking system’s CG mechanisms through the optimization of ownership structure (dispersed ownership) to promote transparency and disclosure. Second, regulators and policymakers should revise guidelines with the main purpose of protecting PSIA’ holders (considered to be minor shareholders without voting power) through promoting disclosure and transparency. Third, the findings can be useful for many international supervisory bodies, like the Islamic Financial Services Board (IFSB) and Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), in evaluating transparency and disclosure standards. Originality/value This study is expected to be useful for all market participants, namely, investors, financial analysts, managers, marker regulators and many international Islamic supervisory bodies, such as the IFSB and AAOIFI, by providing new requirements on CGD in the GCC region and in better understanding its determinants for Islamic banks in this region.

The ultimate controlling owner and corporate governance in Brazil

2019 ◽  
Vol 19 (1) ◽  
pp. 120-140 ◽  
Author(s):  
Vicente Lima Crisóstomo ◽  
Isac de Freitas Brandão
Keyword(s):  
Corporate Governance ◽  
Emerging Market ◽  
Governance System ◽  
Private Benefits ◽  
Controlling Shareholder ◽  
Content Type ◽  
Controlling Shareholders ◽  
Private Benefits Of Control ◽  
Corporate Governance System

Purpose High ownership concentration makes controlling blockholders powerful enough to use private benefits of control and able to shape the corporate governance system to favor their own interests. This paper aims to examine the effect of the nature of the ultimate firm owner on the quality of corporate governance in Brazil. Design/methodology/approach Econometric models are estimated to assess whether the nature of the ultimate controlling shareholder affects the quality of the corporate governance system. Models are estimated using panel data methodology with coefficients estimated by the generalized method of moments system estimator. Findings The results show that the absence of a controlling shareholder has a positive effect on corporate governance, whereas the presence of a controlling blockholder, or a shareholder agreement among a few large shareholders, has a negative effect. This adverse effect holds when the controlling blockholder is a family or another firm. The findings are in line with the expropriation effect given that weaker corporate governance system facilitates controlling shareholders’ ability to extract private benefits of control. The findings also give support to the substitution effect as powerful blockholders take on the management monitoring function by weakening the board. Originality value Following important previous literature, the study investigates the effect of the nature of large controlling shareholders on the adoption of good corporate governance practices. The work provides additional evidence on the effect of the nature of large controlling shareholders on the quality of the corporate governance system in Brazil, taking into account the main kinds of controlling blockholders present in that market. The findings give support to both the expropriation and substitution hypotheses highlighting the presence of the principal-principal agency model in an important emerging market, Brazil.

Financial decisions and ownership structure as control mechanisms of agency problems: evidence from Italy

2018 ◽  
Vol 18 (3) ◽  
pp. 531-563 ◽  
Author(s):  
Fabrizio Rossi ◽  
Robert Boylan ◽  
Richard J. Cebula
Keyword(s):  
Ownership Structure ◽  
Agency Costs ◽  
Generalized Method Of Moments ◽  
Control Mechanisms ◽  
Minority Shareholders ◽  
Data Set ◽  
Business Decisions ◽  
Content Type ◽  
Financial Decisions ◽  
Practical Implications

Purpose The purpose of this study is to investigate the relationship between financial decisions and ownership structure by using the control contests on a sample of Italian listed companies. Design/methodology/approach The analysis adopts a balanced panel data set of 984 firm-year observations for the period of 2002-2013, with estimation using a generalized method of moments. Findings The results appear to confirm both the hypotheses of the alignment of interests and the entrenchment effect. The entrenchment and alignment effects are not found to be alternatives but rather are found to co-exist. The presence of a coalition of minority shareholders acts as a tool to control agency costs, particularly when the coalition is instrumental in the contestability of corporate control. Practical implications These findings suggest that minority shareholders may have a larger impact than previously identified by strategically aligning with other shareholders to form coalitions. This study provides several practical implications. First, dividend payout is not necessarily a good instrument to control and monitor agency costs. This is because the payout can be used to expropriate benefits from the minority shareholders. Second, high ownership concentration does not always reduce agency costs. Third, a non-collusive coalition can be more useful in the monitoring of agency costs than other tools, such as the debt level. Originality/value This study shows that there is considerable value to the firm when individual blockholders come together in a contestable environment and become instrumental in making business decisions. The results support the contention that contestability is an excellent deterrent to dampen the expropriation of benefits to minority shareholders. This study also provides evidence that cash holding can be a good substitute for dividends and debt in the effort to limit agency costs.

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