Ownership and Control of Widely and Closely Held Firms in India

2017 ◽  
Vol 21 (4) ◽  
pp. 449-460 ◽  
Author(s):  
Balakrishnan Kavya ◽  
Santhakumar Shijin
Keyword(s):  
Corporate Governance ◽  
Cash Flow ◽  
Firm Size ◽  
Ownership Structure ◽  
Critical Issue ◽  
Least Square ◽  
Ordinary Least Square ◽  
Concentrated Ownership ◽  
Cash Flow Rights ◽  
And Control

The fundamental dichotomy between dispersed and focused ownership system has been a critical issue in the field of corporate governance. The concentrated ownership mainly controlled by families or state give more supremacy to firms over cash-flow rights. This study investigates the ownership structure of Indian corporates primarily vested in the hands of promoter and promoter groups. Using ordinary least square estimates, the study identifies the determinants of concentrated ownership structure. Further, the study attempts to provide evidence on the convergence of the controls in Indian firms, and thereby assess the wealth concentrated amidst few. The findings of the study reveal contrasting evidence against widely affirmed notion in finance literature by Berle and Means (1932) that widely held firm is the organizational framework of large enterprises. In contrast, our findings reveal that concentrated ownership holds large corporations. Moreover, in addition to the constituents such as firm size, the number of stock markets and geographic ownership also contribute towards a significant impact on concentrated ownership.

scholarly journals Evolution of ownership and control in Italian IPO firms

2008 ◽  
Vol 6 (2) ◽  
pp. 312-333 ◽  
Author(s):  
Silvia Rigamonti
Keyword(s):  
Cash Flow ◽  
Ownership Structure ◽  
Voting Rights ◽  
Set Up ◽  
Cash Flow Rights ◽  
And Control

This article examines the evolution of ownership of cash flow rights and control of voting rights of firms that went public in Italy over the period 1985-2005. At the IPO, the ownership structure does not evolve towards a dispersed one. Even 10 years after the flotation, the initial ultimate shareholder retains the majority of voting rights. Though control is valuable, original owners do not systematically set up structures that dissociate cash flow from voting rights.

Ownership structure and firm performance: evidence from the subprime crisis period

2018 ◽  
Vol 18 (2) ◽  
pp. 206-219 ◽  
Author(s):  
Mamduh M. Hanafi ◽  
Bowo Setiyono ◽  
I Putu Sugiartha Sanjaya
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Cash Flow ◽  
Ownership Structure ◽  
Learning Process ◽  
Ownership Concentration ◽  
Subprime Crisis ◽  
Control Rights ◽  
Content Type ◽  
Cash Flow Rights

Purpose This paper aims to compare the effect of ownership on firm performances in the 1997 and 2008 financial crises. More specifically, it investigates the effect of cash flow rights, control rights and cash flow rights leverage on firm performance. Two conditions motivated the study. First, the 2008 financial crisis happened quickly, so it was endogenous for firms. This setting is ideal to deal with endogeneity problems in a study that involves ownership and performance. Second, during the 2000s, awareness and implementation of corporate governance increased significantly. The authors believe that the markets learn these changes and incorporate them into prices, as suggested by an efficient market hypothesis. Design/methodology/approach The paper investigates and compares the effect of ownership structure on firm performance in the 2008 subprime crisis period to that in the 1997 financial crisis. Both crises happen unexpectedly, so the authors can expect that the crises are exogenous to firms. The authors use cash flow rights, control rights and cash flow right leverage for the ownership structure dimension. They also study time-series data to investigate the effect of ownership on a firm’s value. Findings The study finds that cash flow right and cash flow right leverage did not affect stock performance during the subprime crisis of 2008. It also finds that cash flow right leverage and cash flow right affected stock performance during the financial crisis of 1997. The study attributes this finding to the learning process and improvement of corporate governance during the period of the 2000s. Using time-series data, it finds that cash flow rights positively affect firm performance, suggesting an alignment effect. Ownership concentration improves firm performance. When the study split its sample, it found that the effect ownership on firms’ value is stronger for large firms. Research limitations/implications The study’s main limitation is that it does not test directly the learning process hypothesis. The study contributes to the current literature by presenting more recent evidence on the effect of ownership structure on firm performance in a developing country. The authors argue that markets learn the improvement of corporate governance and incorporate this development into prices. Extending this research to other markets will provide confirmation whether the learning process is an international phenomenon. Practical implications The awareness and implementation of corporate governance should be maintained at least at this level. The positive relationship between ownership concentration and firm performance suggests that concentrated ownership performs monitoring more effectively. Investors should pay attention to ownership concentration. Social implications The finding that prices already reflect corporate governance may suggest that market is monitoring this issue. This seems to be a good finding. Markets can be expected to discipline companies in the implementation of corporate governance. The awareness and implementation of corporate governance should be maintained at least at the current level. Originality/value The study contributes to the current literature by presenting additional evidence on the effect of ownership (using cash flow rights, control rights and cash flow right leverage) on firms’ performance in a more recent period and in a developing country. This period is characterized by a significant increase in awareness and the implementation of good corporate governance.

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.

scholarly journals Corporate governance and banks’ productivity: evidence from the banking industry in Bangladesh

2020 ◽  
Vol 13 (2) ◽  
pp. 615-637 ◽  
Author(s):  
Md. Harun Ur Rashid ◽  
Shah Asadullah Mohd. Zobair ◽  
Md. Asad Iqbal Chowdhury ◽  
Azharul Islam
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Random Effect ◽  
Least Square ◽  
Malmquist Productivity Index ◽  
Productivity Index ◽  
Regulatory Body ◽  
Data Envelopment ◽  
Ordinary Least Square ◽  
The Impact

Abstract Though remarkable literature exploring productivity and efficiency has emerged since the last half of the previous century, but dearth studies have been found in showing the impact of corporate governance on banks’ productivity. The study aims to investigate the banks’ productivity and its relationship with corporate governance. For this purpose, the study examines the productivity of 30 listed banks of Bangladesh deploying a Malmquist Productivity Index (an extension of Data Envelopment Analysis) with a panel data covering the period of five years from 2013 to 2017. The empirical results show that the average productivity of the banks is 1.03%. Finally, the ordinary least square (OLS), fixed effect (FE), and random effect (RE) regression were run separately. The research outcomes show that the productivity of the Bangladeshi banks is significantly influenced by financial performance, ownership structure, and board characteristics. The study provides the researchers, academicians, management of the banks, and regulatory body a new insight of how corporate governance influences the banks’ productivity so that they can formulate a better policy to generate more productivity.

New sights for measuring the relations among environmental information disclosure, economic performance and corporate governance

2020 ◽  
pp. 002072092098368
Author(s):  
Che Siqi ◽  
Zhu Wenzhong ◽  
Li Xuepei ◽  
Pan Wen-Tsao
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Economic Performance ◽  
Information Disclosure ◽  
Environmental Information ◽  
Least Square ◽  
Environmental Disclosure ◽  
Cross Sectional ◽  
Ordinary Least Square ◽  
Environmental Information Disclosure

Environmental information disclosure is gradually gaining popularity, especially under the severe environmental pollution. Analyzing the relations among environmental information disclosure (EID), corporate governance and economic performance by employing a cross-disciplinary and a cross-sectional approach is a new start for improving environmental disclosure. The Ordinary Least Square results suggest that, firstly, firm size and ownership structure have significant positive relations with EID and economic performance. Secondly, the factors of corporate governance including the equity concentration ratio, logarithm of management incentive, logarithm of management shareholding, the board size and the number of directors, all have positive influences on EID. Thirdly, corporate governance has an impact on firm’s economic performance. Lastly, this study reveals that EID positively affects firm’s financial performance—solvency, operational capability and profitability. It is expected that this study can highlight the importance of environmental awareness of professional genre and enhance the environmental disclosure.

An investigation into the effect of surplus free cash flow, corporate governance and firm size on earnings predictability

2014 ◽  
Vol 22 (2) ◽  
pp. 118-133 ◽  
Author(s):  
Redhwan Ahmed AL-Dhamari ◽  
Ku Nor Izah Ku Ismail
Keyword(s):  
Corporate Governance ◽  
Cash Flow ◽  
Firm Size ◽  
Negative Impact ◽  
Governance Structure ◽  
Free Cash Flow ◽  
Least Square ◽  
Content Type ◽  
Earnings Predictability ◽  
The Impact

Purpose – Existing studies on corporate governance mainly focus on how a strong governance system enhances the valuation of firms with cash holding or free cash flow agency problem. The aims of this paper are threefold. First, it investigates the impact of surplus free cash flows (SFCF) on earnings predictability. Second, it investigates whether corporate governance variables moderate the negative impact of SFCF on earnings predictability. Finally, this study examines whether the ability of corporate governance to mitigate SFCF and improve the predictive value of earnings varies between large and small firms. Design/methodology/approach – This paper uses heteroskedasticity-corrected least square regressions upon a sample of Malaysian listed firms. Findings – This paper finds that firms with high SFCF experience less earnings predictability. It also indicates that earnings of firms with high SFCF are more predictable when institutional investors hold a large stake of shares and when a chairperson is independent. Finally, this paper reveals that the role of institutional and managerial ownership in mitigating agency conflict of free cash flow and improving earnings predictability is more prominent in larger firms. This study implies that investors still have reservations about the ability of boards to enhance earnings numbers in Malaysia, although efforts were taken to reform the corporate governance mechanisms following the Asian financial crisis. Originality/value – This research is considered as the first attempt to examine the relationships between SFCF, corporate governance, firm size, and earnings predictability in a developing county such as Malaysia. The findings of this paper serve as a wake-up call to policy makers to evaluate the importance of governance structure in enhancing earnings predictability in emerging economies.

scholarly journals More than a Fair Share? Principal-Principal Conflicts in Emerging Markets: Evidence from India

2016 ◽  
Vol 8 (7) ◽  
pp. 31
Author(s):  
Radha M. Ladkani ◽  
Ashok Banerjee
Keyword(s):  
Risk Aversion ◽  
Emerging Markets ◽  
Cash Flow ◽  
Ownership Structure ◽  
Emerging Market ◽  
Fair Share ◽  
Ownership Structures ◽  
Concentrated Ownership ◽  
Announcement Returns ◽  
Cash Flow Rights

The concentrated ownership structure of emerging market firms may help mitigate principal-agent conflicts; however, the presence of two sets of principals, promoters with controlling stake and dispersed shareholders, may give rise to principal-principal conflicts. India, where firms are largely organized as business groups, with stock pyramids and complex cross-ownership structures, presents a distinctive venue to study the presence of such conflicts. This paper tests if the principal-principal conflicts transpire in the form of risk aversion when Indian bidders seek to merge or acquire. We observe that Indian bidders resort to risk-aversion only when promoters have high cash flow rights, that is, when they hold a majority stake in the acquiring firm. We argue that in business group firms this is likely to happen due to ‘tunnelling distortion’, whereas in standalone firms, this is likely to occur due to ‘portfolio concentration’. However, on investigating deal-announcement returns, we observe that firms with high promoter ownership create value.

scholarly journals DIVIDEND POLICY IN MALAYSIA: A COMPARISON OF DETERMINANTS PRE AND POST MALAYSIAN CODE ON CORPORATE GOVERNANCE

2021 ◽  
Vol 16 (Number 2) ◽  
pp. 1-22
Author(s):  
Mohd Ashari Bakri ◽  
Mohamad Isa Abd Jalil ◽  
Zakiah Hassan
Keyword(s):  
Corporate Governance ◽  
Firm Size ◽  
Dividend Policy ◽  
Market Risk ◽  
Free Cash Flow ◽  
Least Square ◽  
Ordinary Least Square ◽  
Financial Firms ◽  
Robust Standard Error ◽  
Five Factors

This study was aimed at examining the differences between dividend policy determinants pre- and post-Malaysian Code on Corporate Governance (MCCG) 2012. Several factors, including profitability, lagged dividend, free cash flow, debt, firm size, investment opportunities and market risk were tested. The study investigated a total number of 631 non-financial firms in Malaysia that covered 7830 firm-year observations from 2005 to 2011 (pre-MCCG) and from 2013 to 2019 (post-MCCG). The study used pooled Ordinary Least Square (OLS) and random and fixed effect, with a robust standard error. The results demonstrated that from seven factors tested only four factors were found to be significant in determining dividend policy in pre-MCCG, and five factors in post MCCG. The pre-MCCG test revealed that before the revised MCCG 2012, the factors determining dividend policy were as follows: profitability, lagged dividend, debt, and firm size. However, there were slight changes in the range of determinants affecting dividend policy, Post-MCCG 2012. The post MCCG test revealed that profitability, lagged of dividend, and firm size consistently determined firm dividend policy; however, debt was no longer a significant determinant of dividend policy post MCCG. Additionally, investment opportunity and market risk were found to be significant determinants of dividend policy post-MCCG in 2012.

scholarly journals Does pyramiding have an impact on firm’s capital structure decision among Malaysian distress companies?

2005 ◽  
Vol 2 (4) ◽  
pp. 93-106 ◽  
Author(s):  
Fauzias Mat Nor ◽  
Amin Noordin Bany-Ariffin
Keyword(s):  
Capital Structure ◽  
Cash Flow ◽  
Ownership Structure ◽  
Direct Result ◽  
Control Rights ◽  
Financing Decisions ◽  
Pyramidal Ownership ◽  
Cash Flow Rights ◽  
And Control ◽  
The Impact

It is documented by La Porta, Lopez and Shleifer (1999) that ultimate owners around the world usually control an array of affiliated companies through hierarchical intermediary corporations forming pyramidal holdings. A direct result of this pyramidal ownership structure is divergence of cash flow rights from control rights in the hand of the largest shareholders (Claessens, Djankov and Lang 2000). This paper investigates the impact of this separation of cash flow rights from control rights resulting from these pyramidal forms of ownership structure on firm’s capital structure. In particular, our objective is to examine whether such separation affects the financing decisions among Malaysian listed distressed companies. Even though it is not conclusive our findings somewhat lend support to the leverage-increasing non-dilution entrenchment effect on corporate leverage, whereby the separation of cash flow rights and control rights leads to the increase of leverage among the distressed companies. Consequently, excessive use of leverage in order to protect ultimate owner’s dominance in these companies then leads to disastrous financial valuation.

scholarly journals Corporate Governance and Firm Performance: The Role of Transparency & Disclosure in Banking Sector of Pakistan

2014 ◽  
Vol 43 ◽  
pp. 152-166 ◽  
Author(s):  
Rashid Zaman ◽  
Muhammad Arslan ◽  
Muhammad Ayub Siddiqui
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Financial Performance ◽  
Ownership Structure ◽  
Structural Changes ◽  
Banking Sector ◽  
Least Square ◽  
Ordinary Least Square ◽  
Ordinary Least Square Regression ◽  
Transparency And Disclosure

Purpose: This purpose of this paper is to empirically examine the relationship between transparency and disclosure and firm performance. Highlighting the importance of corporate governance in banking sector, the paper has focused in depth over its role, level and its impact on performance in banking industry of Pakistan. Design/methodology/approach: The paper access this purpose by constructing transparency and disclosure index for the past five year 2007-2011, using proxies for three sub-categories which are board and management structure disclosure, ownership structure disclosure and financial transparency disclosure. The paper also investigated structural changes of T&D Index and its effect on bank financial performance over the sample of 30 banks operating in Pakistan. Findings: Empirical analysis results by using ordinary least square regression model, reveals that financial performance is positively related to the transparency and disclosure and their sub levels except ownership structure disclosure which has negative relation with both ROA and ROE. Furthermore the average T&D level in Pakistani banking sector is above average. Practical implications: The current research paper aims for important policy implementation to reduce information asymmetry and improve corporate governance and firm performance in banking sector of Pakistan.

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