Rights issues, private benefits and negative-NPV investments

This paper discusses the use of rights issues when interest conflicts between controlling shareholders and minorities exist, due to the existence of private benefits that the former can extract from the value of listed company. While the literature considers the issue of pre-emptive rights as an essential tool to protect minorities from expropriation, we propose that pre-emptive rights are used to enforce the subscription of seasoned equity issues. We define an abuse condition as the case when a controlling shareholder choose discretionally an issuing price, granting a discount with respect to the market price, and "enforce" minorities to undertake a negative-NPV investment. Minorities do so because they are minimizing an exit cost that is greater than zero. As the rights issue never fails under these conditions, we define this phenomenon as "enforced subscription". This model fits the Italian legal framework and many other international contexts where rights issues are dominant. We report the case of Alitalia’s rights issue in 2005 as a typical example of "enforcement at work". As rights issues at a high discount often involve an abuse of power by the controlling shareholders, we argue that their use should be carefully regulated.

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The ultimate controlling owner and corporate governance in Brazil

Corporate Governance ◽

10.1108/cg-01-2018-0043 ◽

2019 ◽

Vol 19 (1) ◽

pp. 120-140 ◽

Cited By ~ 3

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.

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A Rent-Protection Explanation for SEO Flotation-Method Choice

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109016000314 ◽

2016 ◽

Vol 51 (3) ◽

pp. 1039-1069 ◽

Cited By ~ 9

Author(s):

Xueping Wu ◽

Zheng Wang ◽

Jun Yao

Keyword(s):

Asymmetric Information ◽

Firm Value ◽

Equity Issuance ◽

Announcement Effect ◽

Private Benefits ◽

Controlling Shareholders ◽

Method Choice ◽

Flotation Method ◽

Rights Issues

AbstractWe model how a rent-protection motive drives the choice of flotation method in new equity issuance between two polar cases: rights issues and cash offers. Unexpected new blockholders would emerge in control-diluting cash offers and share in jealously guarded control benefits. But rights issues help the incumbent controlling shareholders avoid control dilution and safeguard their private benefits. Under asymmetric information about private benefits, the choice of flotation method can convey information about hidden private benefits and hence firm value. Our model can explain even a negative announcement effect of rights issues, and it supports not just one but three important equilibriums.

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Are controlling shareholders extracting private benefits from European public acquisitions?

International Journal of Managerial Finance ◽

10.1108/ijmf-07-2012-0081 ◽

2015 ◽

Vol 11 (1) ◽

pp. 80-96 ◽

Cited By ~ 2

Author(s):

Mohamed Firas Thraya

Keyword(s):

Voting Rights ◽

High Tech ◽

Private Benefits ◽

Cross Sectional ◽

Controlling Shareholder ◽

Content Type ◽

Controlling Shareholders ◽

Private Benefits Of Control ◽

European Public ◽

Cash Flow Rights

Purpose – The purpose of this paper is to examine the incentives of controlling shareholders in the market for corporate control. The author investigates the takeover premiums paid by a sample of European acquiring firms with voting rights structures that are highly concentrated. The results show a positive relationship between takeover premiums and the bidder’s concentration of both voting rights and excess voting rights over cash-flow rights. The author argues that with higher levels of entrenchment, takeover premiums reflect the private benefits of control which controlling shareholders in bidding firms seek to extract from a public transaction. Design/methodology/approach – This paper uses cross-sectional regression analyses to examine the relationship between takeover premiums and the extent to which bidding firm shareholders exert control as well as the arrangement which underlie this. The sample is composed by 210 deals. The data are collected from various databases (Thomson Financial’s Mergers and Acquisition; Faccio and Lang’s (2002); Datastream/Worldscope, LexisNexis). Findings – The premium paid in European M&A transactions is affected by the level of ownership exerted by the controlling shareholder. The results show premiums are positively and significantly associated with higher levels of voting rights, as well as, the level of separation of ownership and control when controlling shareholder ownership is low. Pyramiding structure seems to be the means of separation the most associated with takeover premiums. Research limitations/implications – This paper can be improved by other specifications. First, it would be interesting to analyze premiums paid by firms with dispersed ownership structure and to compare these premiums with those paid by firms with controlling shareholders. Second, the author suggests to examine whether a controlling shareholder occupy the seat of a CEO or a chairman. In these cases, the author assumes that the controlling shareholder can benefit from more discretion and can extract more private benefits. Third, the author suggests extending the sample period to 2007 at least to include the sixth wave. This wave was even more significant than the high-tech wave and has not been studied much. In these cases, the author assumes that the controlling shareholder can benefit from more discretion and can extract more private benefits. Originality/value – Previous studies show that the premium reflects the private benefits of control in privately negotiated transactions (mainly block transactions). In the present study, the author shows that the premium can also reflect private benefits in public merger transactions.

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PENGARUH PEMEGANG SAHAM PENGENDALI TERHADAP KOMPENSASI DIREKSI DENGAN MEKANISME PEMEGANG SAHAM INSTITUSIONAL SEBAGAI VARIABEL PEMODERASI

Jurnal Benefita ◽

10.22216/jbe.v3i3.2489 ◽

2018 ◽

Vol 3 (3) ◽

pp. 315

Author(s):

Andre Bustari

Keyword(s):

Board Of Directors ◽

Financial Services ◽

Research Method ◽

Quantitative Method ◽

Listed Company ◽

Statistical Test ◽

Controlling Shareholder ◽

Controlling Shareholders ◽

The Board Of Directors ◽

Institutional Shareholders

Penelitian ini bertujuan untuk membuktikan pemegang saham pengendali terhadap kompensasi direksi dengan mekanisme pemegang saham institusional sebagai variabel pemoderasi. Sampel penelitian ini adalah 22 perusahaan yang menjadi emiten tetap terbesar termasuk kedalam Likuiditas 45 (LQ45) dari periode 2011 sampai dengan 2015. Metode penelitian yang digunakan adalah metode kuantitatif. Uji statistik yang gunakan dalam penelitian ini adalah Regresi Linear Berganda. Teori keagenan memperediksi bahwa pemegang saham pengendali berpengaruh positif terhadap kompensasi direksi. Hasil penelitian pertama tidak dapat membuktikan pengaruh pemegang saham pengendali terhadap kompensasi direksi dikarenakan fungsi pemegang saham pengendali dilaksanakan oleh Komite Independen sesuai yang diisyaratkan oleh peraturan-peraturan yang diterbitkan oleh Otorita Jasa Keuangan sehingga pemegang saham pengendali tidak mempengaruhi pemberian kompensasi kepada direksi. Hasil penelitian kedua tidak membuktikan pengaruh pemegang saham institusional dalam memperlemah pengaruh pemegang saham pengendali terhadap kompensasi direksi. Ini diduga pemegang saham institusional menilai pemberian kompensasi dan pengawasnya sudah dilaksanakan dengan adanya komite independen internal perusahaan. This study aims to prove the controlling shareholder to the compensation of the directors with the mechanism of institutional shareholders as a moderating variable. The sample of this research is 22 companies which become the biggest listed company including into Liquidity 45 (LQ45) from period 2011 to 2015. The research method used is quantitative method. The statistical test used in this study is Multiple Linear Regression. The agency theory predicts that the controlling shareholders positively influence the compensation of the board of directors. The results of the first study cannot prove the influence of the controlling shareholder on the compensation of the directors because the controlling shareholder function is carried out by the Independent Committee in accordance with the rules issued by the Financial Services Authority so that the controlling shareholder does not affect the compensation to the directors. The results of the second study do not prove the influence of institutional shareholders in weakening the influence of the controlling shareholder on the compensation of the directors. It is alleged that the institutional shareholders assess the compensation and the supervisor has been implemented with the company's internal independent committee.

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Does Debt Curb Controlling Shareholders’ Private Benefits? Modelling in a Contingent Claim Framework

SSRN Electronic Journal ◽

10.2139/ssrn.3447201 ◽

2016 ◽

Author(s):

Hubert de La Bruslerie

Keyword(s):

Contingent Claim ◽

Private Benefits ◽

Controlling Shareholders

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Earnings Management and Capital Resource Allocation: Evidence from China's Accounting-Based Regulation of Rights Issues

The Accounting Review ◽

10.2308/accr.2004.79.3.645 ◽

2004 ◽

Vol 79 (3) ◽

pp. 645-665 ◽

Cited By ~ 345

Author(s):

Kevin C. W. Chen ◽

Hongqi Yuan

Keyword(s):

Resource Allocation ◽

Earnings Management ◽

Listed Companies ◽

Return On Equity ◽

Rights Issue ◽

Rights Issues ◽

Over Time ◽

Do So

From 1996 to 1998, listed companies in China were required to achieve a minimum return on equity (ROE) of 10 percent in each of the previous three years before they could apply for permission to issue additional shares. As a result of this rule, there was a heavy concentration of ROEs in the area just above 10 percent. We show that the Chinese regulators appear to have scrutinized firms using excess amounts of nonoperating income to reach the 10 percent hurdle. In addition, their ability to do so seems to have improved over time, which allows them to be better able to identify firms that subsequently performed better. However, many firms were still able to gain rights issue approval through excess nonoperating income. We show that these firms subsequently underperformed other approved firms that did not use the same practice, indicating that the Chinese regulators' objective of guiding capital resources toward the well-performing sectors is partially compromised by earnings management.

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

Baltic Journal of Management ◽

10.1108/bjm-08-2020-0274 ◽

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.

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Prediksi Harga Saham Perusahaan Perbankan Menggunakan Regresi Linear Studi Kasus Bank BCA Tahun 2015-2017

Jurnal ULTIMATICS ◽

10.31937/ti.v11i1.1239 ◽

2019 ◽

Vol 11 (1) ◽

pp. 11-15

Author(s):

Merfin Merfin ◽

Raymond Sunardi Oetama

Keyword(s):

Stock Price ◽

Historical Data ◽

Listed Company ◽

Market Price ◽

Local Economy ◽

Average Error ◽

Stock Investment ◽

The People ◽

Mining Tool ◽

A Company

Stock investment is important for financial development in a company. Moreover, the stock price displayed by the company can be known by the people and the local economy because the company has gone public on the Indonesia Economic Exchange (IDX) at www.idx.co.id. There are several fundamental factors that influence the stock market price in a listed company and as a result the number of stock investors in Indonesia is very small. This cause made it difficult for the community to predict the stock price of banking companies at inconsistent prices. The method to be used in this paper is Linear Regression using Excel tools to perform calculations and SPSS 16.0 as a data mining tool. The research data taken is historical data of banking companies for 3 periods as a whole in the form of excel that has been downloaded from the Yahoo Finance website. The final results are in the form of MAPE charts in 3 years period, and Average error chart in 3 years period.

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The (co)evolution of human rights advocacy: Understanding human rights issue emergence over time

Cooperation and Conflict ◽

10.1177/0010836718808315 ◽

2018 ◽

Vol 54 (3) ◽

pp. 313-334 ◽

Cited By ~ 1

Author(s):

Baekkwan Park ◽

Amanda Murdie ◽

David R Davis

Keyword(s):

Human Rights ◽

Causal Process ◽

Change Over Time ◽

Advocacy Network ◽

Human Rights Advocacy ◽

Human Rights Norms ◽

Rights Issue ◽

Relationship Of ◽

Rights Issues ◽

Over Time

How does the discussion of human rights issues change over time? Without advocates adopting a human rights issue in the first place, international ‘shaming’ cannot occur. In this article, we examine how human rights discussions converge and diverge around new frames and new issues over time. Human rights norms do not evolve alone; their prevalence, framing, and focus are all dependent on how they relate to other norms in the advocacy community. Drawing on over 30,000 documents from dozens of human rights organizations from 1990 to 2011, we provide a temporal overview and visualization of the ebb and flow of human rights issues. Using our new dataset and state-of-the-art methods from computer science, our approach allows us to quantitatively examine (a) how new issues emerge in the advocacy network, (b) the relationship of these new issues to extant human rights advocacy and information, and (c) how the framing and specificity of these issues change over time. By focusing on the process by which a new issue gets incorporated into the work of advocates, we provide an empirical assessment of the first step in the causal process connecting shaming to improvement in human rights practices.

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Corporate governance and firm valuation – the case of China

Corporate Ownership and Control ◽

10.22495/cocv7i2p2 ◽

2009 ◽

Vol 7 (2) ◽

pp. 21-29 ◽

Cited By ~ 1

Author(s):

Ohannes George Paskelian ◽

Stephen Bell

Keyword(s):

Firm Value ◽

Cash Holdings ◽

Firm Valuation ◽

Government Ownership ◽

Private Benefits ◽

Controlling Shareholder ◽

Foreign Investors ◽

High Government ◽

Corporate Cash Holdings ◽

Strong Inverse Relationship

We examine the determinants and implications of Chinese corporate cash holdings in the 1993- 2006 period. Agency theories assert that firms with a large controlling shareholder have relatively large cash holdings because of the greater ability of the controlling shareholder to extract private benefits from the cash holdings. Our findings show a very strong inverse relationship between cash holdings and firm valuation in high government ownership firms. Also, we find that in firms with high government ownership, dividend payouts are highly valued. We conclude that Chinese investors see government ownership as a factor that reduces firm value. They prefer relatively higher dividends from firms having high government ownership. Conversely, investors assign much higher value to firms with relatively low government ownership and they tend to be neutral about the dividends payouts of such firms. Also, investors value highly the presence of foreign investors in Chinese firms and tend to be neutral about dividend payouts of firms with high foreign ownership concentration.

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