scholarly journals Control-Ownership Wedge and Industry Specialist Auditor

2021 ◽  
Vol 9 (1) ◽  
pp. 22-33
Author(s):  
Aree Saeed Mustafa
Keyword(s):  
Audit Quality ◽  
Minority Shareholders ◽  
Control Rights ◽  
Controlling Shareholders ◽  
Model Finding ◽  
Cash Flow Rights ◽  
Research Analysis ◽  
Suitable Environment ◽  
Industry Specialist

This study extends agency theory by explaining the client's understanding of audit quality. This study contributes to the audit literature by examining the effect of wedge control-ownership on industry specialist auditors that have not been researched in Turkey. The interests of minority and controlling shareholders are not completely compatible. The research analysis method used a logistic regression model, finding that firms that practice a larger difference between control rights and cash flow rights tend to prefer high audit quality measures by industry specialist auditors. This study encourages regulators to improve law enforcement to enhance the role of corporate governance in Turkey to address the features of ownership-control firms and offer a suitable environment for investment and minority shareholders.

Controlling shareholders and financial constraints around the world

2018 ◽  
Vol 44 (1) ◽  
pp. 92-108 ◽  
Author(s):  
Jin Ho Park ◽  
Kwangwoo Park ◽  
Ronald Andrew Ratti
Keyword(s):  
Cash Flow ◽  
Financial Constraints ◽  
Generalized Method Of Moments ◽  
Legal Environment ◽  
Minority Shareholders ◽  
Control Rights ◽  
Content Type ◽  
Controlling Shareholders ◽  
Cash Flow Rights ◽  
The Given

Purpose The purpose of this paper is to examine the effect of controlling shareholders’ ownership of firms on the firms’ financial constraints in 22 economies for the 1982-2009 period. Design/methodology/approach The authors employ a generalized method of moments-based instrumental variables estimator to estimate empirical models. Findings It found that the overinvestment propensity of controlling shareholders becomes less severe with an increase in cash-flow rights. It further indicates that a higher deviation between the control rights and cash-flow rights of controlling shareholders lower their overinvestment propensity, thereby lowering the firm’s financial constraints. Originality/value The results suggest that a higher protective legal environment for minority shareholders blocks the entrenchment of controlling shareholders and thus benefitting the firm with slackened financing constraints in the given legal origin.

scholarly journals 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

2014 ◽  
Vol 17 (4) ◽  
pp. 471-483 ◽  
Author(s):  
Chin Fei Goh ◽  
Amran Rasli ◽  
Saif-Ur-Rehman Khan
Keyword(s):  
Family Firms ◽  
Stock Exchange ◽  
Market Performance ◽  
Economic Incentive ◽  
Economic Incentives ◽  
Minority Shareholders ◽  
Control Rights ◽  
Controlling Shareholders ◽  
Large Shareholders

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. 

Agency Costs of Controlling Shareholders' Share Collateral with Taiwan Evidence

2007 ◽  
Vol 10 (02) ◽  
pp. 173-191 ◽  
Author(s):  
Anlin Chen ◽  
Lanfeng Kao ◽  
Yi-Kai Chen
Keyword(s):  
Corporate Governance ◽  
Agency Costs ◽  
Legal Regulation ◽  
Governance Mechanism ◽  
Minority Shareholders ◽  
Control Rights ◽  
Controlling Shareholders ◽  
Corporate Governance Mechanism ◽  
Cash Flow Rights ◽  
And Control

Controlling shareholders' share collateral is a new source of the deviation of cash flow rights and control rights leading to minority shareholder expropriation. However, controlling shareholders' share collateral is not forbidden and has not received particular restriction leading to its popularity in the capital markets. Neglecting the potential agency costs resulting from controlling shareholders' share collateral would hurt the interests of creditors and minority shareholders. We need legal regulation on controlling shareholders' share collateral to reinforce corporate governance mechanism to protect the interests of creditors and minority shareholders.

scholarly journals Controlling shareholders’ ownership structure, foreign investors’ monitoring, and investment efficiency

2016 ◽  
Vol 13 (3) ◽  
pp. 159-170 ◽  
Author(s):  
Hyun-Young Park ◽  
Soo-Joon Chae ◽  
Moon-Kyung Cho
Keyword(s):  
Firm Value ◽  
Investment Decisions ◽  
Jel Classification ◽  
Foreign Investor ◽  
Investment Efficiency ◽  
Governance Mechanism ◽  
Minority Shareholders ◽  
Foreign Investors ◽  
Controlling Shareholders ◽  
Cash Flow Rights

This study examines the effect of control-ownership wedge (the difference between control rights and cash flow rights) on investment efficiency. Subsequently, the authors analyze how the level of foreign investor monitoring influences the association between control-ownership wedge and investment efficiency. The results of the analyses show that investment efficiency deteriorates as control-ownership wedge increases. This, in turn, suggests that when this wedge increases, agency problems and information asymmetry between controlling and minority shareholders become more severe. The authors also perform an analysis by dividing the samples into four groups based on foreign investor ratio from the least to the greatest. The result shows that control-ownership wedge deteriorates investment efficiency in the group with the least foreign investor ratio. The result reveals that foreign investor monitoring is effective corporate governance mechanism to monitor the controlling shareholders’ investment decisions. We also find that higher control-ownership wedge with over-investment tendency negatively affects firm performance, which implies an inefficient investment behavior. This result suggests that as controlling shareholders’ ownership increases, controlling shareholders becomes more and more reluctant to assume a loss of firm value as a result of reduced investment efficiency. This study provides additional evidence that the greater control-ownership wedge decreases investment efficiency, while recent studies on the relation between control-ownership wedge and investment efficiency suggest mixed evidence. In addition, the results show that foreign investors play an effective monitoring role when controlling shareholders are in position of exercising exclusive power. The results indicate the importance of external investors’ monitoring over investment decisions. Keywords: control-ownership wedge, foreign ownership, investment efficiency, over-investment, under-investment. JEL Classification: G32, M41

scholarly journals On the relationship between ownership-control structure and debt financing: new evidence from France

2007 ◽  
Vol 5 (1) ◽  
pp. 139-154 ◽  
Author(s):  
Sabri Boubaker
Keyword(s):  
Debt Financing ◽  
Minority Shareholders ◽  
Control Rights ◽  
Controlling Shareholder ◽  
External Finance ◽  
Cash Flow Rights ◽  
Ownership Rights ◽  
And Control ◽  
New Evidence ◽  
The Relationship

The paper deals with external debt financing in controlling minority structures (CMSs), a very pervasive corporate organizational structure in France outside CAC 40 firms. Since large controlling shareholders in such firms maintain grip on control while owning only a small fraction of ownership rights, we are in a situation where their interests depart from that of the minority shareholders. Using a sample of 377 French firms, we show that firms featuring a substantial likelihood of expropriation (higher discrepancy between cash flow rights and control rights or group-affiliated), present lower leverage ratios than others due to debt supply restrictions. Contrariwise, the presence of second large controlling shareholder is perceived by external finance suppliers as a pledge against expropriation. Therefore, such firms exhibit high debt levels.

scholarly journals Effect of corporate governance on expropriation practices with family ownership as moderation variable

2021 ◽  
Vol 8 (3) ◽  
Author(s):  
Gladys Bella Novenna Rettob ◽  
Imam Subekti ◽  
Endang Mardiati
Keyword(s):  
Corporate Governance ◽  
Sampling Method ◽  
Stock Exchange ◽  
Research Data ◽  
Family Ownership ◽  
Control Rights ◽  
Controlling Shareholders ◽  
The Family ◽  
Governance Practices ◽  
Cash Flow Rights

The practice of expropriation is one of the accounting frauds committed by controlling shareholders because of their control rights that exceed cash flow rights. This study aims to examine and analyze the effect of corporate governance on the practice of expropriation and the existence of family ownership as a moderating variable. This research was conducted at companies in all sectors of the Indonesia Stock Exchange. Based on the purposive sampling method, the sample of this study was 78 companies with 312 observations. The research data were analyzed using multiple regression analysis. The results of this study indicate that the practice of expropriation in Indonesia can be minimized by implementing adequate corporate governance. The results of this study also prove that companies whose shareholding structures are dominated by the family will maintain control in the company through their management so that they have an impact on limiting governance practices in reducing expropriation practices.

scholarly journals Agency conflicts and choice of specialist audit firms and audit partners: Signaling or substantial monitoring?

2013 ◽  
Vol 10 (3) ◽  
pp. 114-128
Author(s):  
Hsiangtsai Chiang
Keyword(s):  
Side Effects ◽  
Agency Costs ◽  
Audit Quality ◽  
Agency Conflicts ◽  
Demand Side ◽  
Minority Shareholders ◽  
Audit Firms ◽  
The Impact ◽  
Selection Of

This study contributes to the literature on company audits by examine the demand-side effects of the selection of industry-specialist audit firms and auditors; it does this by considering the impact of the agency problem that exists between controlling owners and minority shareholders. It is shown that the potential magnitude of the agency costs associated with interest entrenchment increases the demand for auditors whose audit quality is perceived to be higher with regard to the signaling role of audits, but decreases the probability of engaging individual specialist auditors who actually carry out higher quality audits with regard to substantial monitoring.

scholarly journals Ownership structure and corporate governance code: The case of family business enterprises in Germany

2009 ◽  
Vol 6 (4) ◽  
pp. 382-390 ◽  
Author(s):  
Marion Weissenberger-Eibl ◽  
Patrick Spieth
Keyword(s):  
Corporate Governance ◽  
Family Business ◽  
Ownership Structure ◽  
Family Businesses ◽  
Minority Shareholders ◽  
Controlling Shareholders ◽  
Corporate Governance Code ◽  
Business Enterprises ◽  
And Control

Ownership of corporations in Germany is today highly concentrated in the hands of families and other companies. Theses ‘insider’ systems often result in core conflict tends to be between controlling shareholders and sometimes between strong stakeholders and weak minority shareholders. The aim of this paper is to research the characteristics of ownership and control in family business and point out the role of Family Business Governance in securing an appropriate control of the owning families. The authors give suggestions how to implement the German Governance Code recommendations in family businesses.

Ownership Concentration and Share Valuation

2004 ◽  
Vol 5 (2) ◽  
pp. 143-171 ◽  
Author(s):  
Jeremy S. S. Edwards ◽  
Alfons J. Weichenrieder
Keyword(s):  
Harmful Effect ◽  
Ownership Concentration ◽  
Minority Shareholders ◽  
Control Rights ◽  
Private Benefits ◽  
Beneficial Effects ◽  
Concentrated Ownership ◽  
Cash Flow Rights ◽  
German Data ◽  
Harmful Effects

Abstract Concentrated ownership of large listed companies is widespread throughout the world, and Germany is typical in this respect. This paper proposes a method of distinguishing empirically between the beneficial and harmful effects of ownership concentration, and applies it to German data. The results show that, for most types of largest shareholder, the beneficial effects on minority shareholders of increased ownership (greater monitoring of management, and reduced incentives to exploit minority shareholders due to greater cash-flow rights) are at least as large as, and sometimes significantly larger than, the harmful effect (greater private benefits of control due to greater control rights).

Auditor Selection and Audit Committee Characteristics

2000 ◽  
Vol 19 (2) ◽  
pp. 47-66 ◽  
Author(s):  
Lawrence J. Abbott ◽  
Susan Parker
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Audit Quality ◽  
Audit Committees ◽  
Industry Specialization ◽  
The Subject ◽  
Auditor Selection ◽  
High Level ◽  
Industry Specialist

The role of the audit committee in corporate governance is the subject of increasing public and regulatory interest. We focus on one frequently noted function of the audit committee: auditor selection. We argue that independent and active audit committee members demand a high level of audit quality because of concerns about monetary or reputational losses that may result from lawsuits or SEC sanction. Auditors who specialize in the client's industry are expected to provide a higher level of audit quality than do nonspecialists. Thus, we predict that firms with audit committees that are both independent and active are more likely to employ an industry-specialist auditor. We find that firms with audit committees that do not include employees and that meet at least twice per year are more likely to use specialists. This study contributes to our understanding of audit committee functions and provides evidence that industry specialization is an important element of auditor selection.

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