Beyond Cash Flow and Voting Rights: Valuation and Performance of Firms in Complex Ownership Structures

The unbundling of cash flow and voting rights has been severely criticized worldwide and yet, the dual class structure persists as an alternative widely adopted by firms. This paper aims to provide some explanations as to why this happens, particularly from a comparative perspective that analyzes the contexts of Brazil and the United States, two countries that take a rather different approach regarding corporate ownership structures. In order to do so, it reviews the panorama of dual class structures, their main characteristics and the unification process that both countries underwent. On top of these discussions, this paper presents some arguments to explain why the dual class structure still persists both in Brazil and in the U.S. (although with variable intensity), despite all the criticism aimed at the segregation of cash flow and voting rights.

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

Corporate Ownership and Control ◽

10.22495/cocv9i2art7 ◽

2012 ◽

Vol 9 (2) ◽

pp. 85-93 ◽

Cited By ~ 2

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.

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Ownership, control, valuation and performance of Brazilian corporations

Corporate Ownership and Control ◽

10.22495/cocv4i1c2p6 ◽

2006 ◽

Vol 4 (1) ◽

pp. 300-308 ◽

Cited By ~ 16

Author(s):

André Luiz Carvalhal da Silva ◽

Ricardo Pereira Câmara Leal

Keyword(s):

Cash Flow ◽

Control Structure ◽

Voting Rights ◽

Firm Valuation ◽

Control Structures ◽

Controlling Shareholders ◽

Indirect Control ◽

And Performance ◽

Cash Flow Rights ◽

And Control

This paper analyzes the ownership and control structure of Brazilian companies and the effect of cash flow and voting rights on firm valuation and performance. Ownership is quite concentrated in Brazil with most companies being controlled by a single direct shareholder. We find evidence that non-voting shares and indirect control structures are largely used to concentrate control with reduced overall investment in the company. Our results support the hypothesis that firm valuation and performance are positively related to cash flow concentration, and negatively related to voting concentration and to the separation of voting from cash flow rights. Moreover, firm valuation and performance are relatively higher for firms with controlling shareholders when compared to firms without controlling shareholders.

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Evolution of ownership and control in Italian IPO firms

Corporate Ownership and Control ◽

10.22495/cocv6i2c2p6 ◽

2008 ◽

Vol 6 (2) ◽

pp. 312-333 ◽

Cited By ~ 5

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.

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The Impact of the Ownership Discrepancy Between Cash-Flow Rights and Voting Rights on Firms’ Soft Asset Investment Decisions: Evidence from Large Business Groups in South Korea

Group Decision and Negotiation ◽

10.1007/s10726-014-9397-3 ◽

2014 ◽

Vol 24 (3) ◽

pp. 429-450 ◽

Cited By ~ 3

Author(s):

Pyung K. Kang ◽

Yoo Chan Kim

Keyword(s):

South Korea ◽

Cash Flow ◽

Business Groups ◽

Investment Decisions ◽

Voting Rights ◽

Cash Flow Rights ◽

The Impact

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The impact of minority foreign ownership and controlling shareholder on bank risk and performance

Managerial Finance ◽

10.1108/mf-06-2013-0137 ◽

2015 ◽

Vol 41 (5) ◽

pp. 526-546 ◽

Cited By ~ 2

Author(s):

Ruth Tacneng

Keyword(s):

Default Risk ◽

Voting Rights ◽

Foreign Ownership ◽

Controlling Shareholder ◽

Content Type ◽

Bank Behavior ◽

Family Business Groups ◽

And Performance ◽

Domestic Banks ◽

The Impact

Purpose – The purpose of this paper is to examine the impact of minority foreign ownership on the risk taking behavior and performance of domestic banks in a country where foreign ownership restrictions are imposed. Design/methodology/approach – Mainly controlled by family business groups, the authors examine the extent by which the presence and the level of foreign ownership and voting rights affect domestic bank behavior. Findings – The results show that compared with those purely domestic-owned, banks with foreign shareholdings have lower levels of insider lending and have higher loan portfolio quality. Moreover, the authors find an increase in foreign voting rights effective in raising risk-adjusted returns and in lowering default risk. This positive effect on performance, however, ceases at higher levels of control manifested by the majority domestic shareholder. Research limitations/implications – Overall, this study shows that there are significant benefits derived from minority foreign shareholder presence in Philippine domestic banks. Originality/value – This paper contributes to the debate of whether it may be beneficial to reduce or completely lift the foreign ownership restrictions imposed on the banks in the country.

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