scholarly journals IMPACT CASH FLOW RIGHT LEVERAGE OF CONTROLLING SHAREHOLDER ON PERFORMANCE IN INDONESIA

2017 ◽  
Vol 20 (3) ◽  
Author(s):  
I Putu Sugiartha Sanjaya
Keyword(s):  
Cash Flow ◽  
Agency Problem ◽  
Manufacturing Companies ◽  
Control Rights ◽  
Financial Service Authority ◽  
Controlling Shareholder ◽  
Controlling Shareholders ◽  
Agency Conflict ◽  
Cash Flow Rights ◽  
The Impact

The purpose of this study is to investigate the impact of cash flow rights leverage of controlling shareholder on performance. The ownership of common stock has some rights such as control rights and cash flow rights. Control rights are the rights of common shareholders to elect board of directors and other company’s policies, such as the issuence of securities, stock split and substansial changes in company’s operation (Du and Dai, 2005). Cash flow rights are the financial claims of shareholders on the companies (La Porta et al., 1999). Case in Indonesia, commonly there are differences between control rights and cash flow rights. It  is called cash flow right leverage. The large leverage indicates the large agency conflict between controlling shareholder and non-controlling shareholders. The low leverage indicates the low agency conflict. It will impact on performance. If the control rights are greater than cash flow rights, it indicates the larger agency problem. It indicates that the power of the controlling shareholder in the company is larger than claim to the firm. It is incentive for a controlling shareholder to expropriate non-controlling shareholders through utilizing assets of company for his/her private benefit. This study uses the sample of the manufacturing companies listed in the Indonesian Stock Exchange during the period 2001-2007. Performance is measured by Return on Assets (ROA). The results of this study show that the cash flow right leverage of controlling shareholder has negative impacts on performance. It means the large agency conflict (cash flow right leverage) between controlling and non-controlling shareholders reduce performance. The results of this study can give contribution for Indonesia Financial Service Authority (Otoritas Jasa Keuangan (OJK)) to monitor public companies in Indonesia. This institution more focus for companies which has large cash flow right leverage. Because, it indicates the large agency problem between controlling and non-controlling shareholders.

The effect of ownership-control disparity on the Chinese firm’s real activity earnings management

2018 ◽  
Vol 30 (4) ◽  
pp. 482-499 ◽  
Author(s):  
Sang Ho Kim ◽  
Yohan An
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Capital Markets ◽  
Chinese Firms ◽  
Real Activity ◽  
Content Type ◽  
Controlling Shareholders ◽  
Cash Flow Rights ◽  
The Impact ◽  
Ownership Control

Purpose This paper aims to investigate the impact of the separation between control and cash flow rights (control-ownership disparity) on the earnings management practices of Chinese firms. The notable features of Chinese firms are those of concentrated ownership and the severe disparity that exists between the control and cash flow rights of controlling shareholders. Design/methodology/approach This study measures the level of Chinese firms’ earnings management by adopting two different methods of measurement: accrual-based earnings management (AEM) and real activity earnings management (REM). The authors also consider the possible trade-off effects between these two types of measurements. The data set in this study encompasses over 2,000 Chinese firms, using data from 2003 to 2015. Findings The results indicate that controlling shareholders are more likely to engage in AEM as their cash flow rights are more concentrated, while they are less likely to use REM as the disparity of control-cash flow rights increases. Further, this inverse relationship between REM and control-cash flow rights disparity becomes more pronounced in the case of a low cash flow rights group. As REM generally causes distortions in firms’ operations, it is possible that the controlling shareholders are more likely to constrain the use of REM as the disparity is perceived to grow. This result may indicate a reduced agency problem between controlling and minority shareholders due to the developing and/or existing ownership dispersions, which are mainly driven by recent reforms applied to Chinese capital markets. However, we do not entirely exclude the possibility of other types of expropriations by the controlling shareholders. It appears that the controlling shareholders are still able to exert a significant level of control, even following a substantial ownership dispersion, and they may seek alternative expropriation methods, including but not limited to intercorporate loan or related party transactions as the disparity of control-cash flow rights increases. Originality/value Although the Chinese economy is experiencing a series of reforms to infuse market forces into capital markets, little has been known about the effects of ownership-control disparity in Chinese firms. Our findings highlight the importance of the country specific context in this vein of research.

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 Controlling shareholders and corporate valuation in Brazil

2006 ◽  
Vol 3 (2) ◽  
pp. 137-141
Author(s):  
Ricardo P. C. Leal ◽  
Andre Carvalhal da Silva
Keyword(s):  
Cash Flow ◽  
Ownership Structure ◽  
Firm Valuation ◽  
Controlling Shareholder ◽  
Controlling Shareholders ◽  
Corporate Valuation ◽  
Large Shareholders ◽  
And Performance ◽  
Cash Flow Rights

This paper investigates the relation between the ownership structure, valuation and performance of Brazilian companies. The results show that large shareholders keep control while holding only a small fraction of cash flow rights. The evidence also indicates that non-voting shares and pyramiding are the main devices set to entrench the large controlling shareholder. There is some evidence that firm valuation and performance are negatively related to voting concentration, and that foreign-owned firms perform the best while government-owned firms perform the worst.

scholarly journals The Effects Of Ultimate Controlling Shareholders On Debt Maturity Structure

2013 ◽  
Vol 29 (2) ◽  
pp. 553 ◽  
Author(s):  
Kun Su ◽  
Peng Li
Keyword(s):  
Cash Flow ◽  
Agency Costs ◽  
Debt Maturity ◽  
Debt Financing ◽  
Controlling Shareholder ◽  
Controlling Shareholders ◽  
Debt Maturity Structure ◽  
Maturity Structure ◽  
Cash Flow Rights ◽  
Agency Costs Of Debt

Using a balanced panel data of 915 Chinese listed firms, this paper studies the effect of ultimate controlling shareholders on debt maturity structure by adopting random effect model. Our results show: the larger the ultimate controlling shareholders cash flow rights, the higher the cost of expropriating outside investors by ultimate controlling shareholder, and can reduce the agency costs of debt financing, so banks are willing to provide more long term debt funds for the firms. Ultimate controlling shareholders cash flow rights are positively related to debt maturity structure. The larger the divergence between ultimate controlling shareholders control rights and cash flow rights, the more likely of ultimate controlling shareholder to expropriate outside investors, and this increase the agency conflicts between firms and creditor, which leading to higher agency costs of debt financing, so banks tend to provide more short term funds for firms to constrain the ultimate controlling shareholder. The divergence between ultimate controlling shareholders controlling rights and cash flow rights are negatively related to debt maturity structure.

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 Pyramiding effect on firm’s investment decision among Malaysian distress companies

2005 ◽  
Vol 3 (1) ◽  
pp. 163-172
Author(s):  
Fauzias Mat Nor ◽  
Amin Noordin Bany-Ariffin
Keyword(s):  
Cash Flow ◽  
Ownership Structure ◽  
Investment Decisions ◽  
Direct Result ◽  
Control Rights ◽  
Investment Activity ◽  
Pyramidal Ownership ◽  
Cash Flow Rights ◽  
The Impact ◽  
Retained Earnings

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 a Pyramidal Ownership Structure. 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 investigate the impact of this separation of cash flow rights from control rights resulting from this pyramidal forms of ownership structure on firm’s investment decisions. In particular, our objective is to examine whether such separation affects the investment decisions among Malaysian listed distress Companies. Our findings lends support to the over investment problem, where by the separation of cash flow rights and control rights have led to the increase of inefficient investment among the distress companies. The main source of financing for this inefficient investment activity is the firm’s retained earnings. Consequently, the exploitation of such firm’s resources in order to finance these inefficient investment activities of the ultimate owner’s then lead to negative market valuation.

scholarly journals Do Private Benefits of Control Affect Corporate Social Responsibility? Evidence from China

2018 ◽  
Vol 10 (9) ◽  
pp. 3309 ◽  
Author(s):  
Qiang Liu ◽  
Guoqing Ge ◽  
Chong Ning ◽  
Xiaobo Tao ◽  
Yongbo Sun
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Cash Flow ◽  
Control Rights ◽  
Private Benefits ◽  
Controlling Shareholder ◽  
Private Benefits Of Control ◽  
Cash Flow Rights ◽  
Corporate Social ◽  
And Control

In this study, we examined whether private benefits of control can influence corporate social responsibility performance. We used both separations between cash flow and control rights and the length of the longest control chain to measure private benefits of control. Consistent with the private benefits motive, we found that firms with greater divergence between cash-flow rights and control rights, with longer control chains, are associated with lower corporate social responsibility performance. Further, we found that earnings management and capital occupation by the controlling shareholder are the two effective channels through which private benefits of control affect corporate social responsibility. Additionally, this negative association is more pronounced for firms located in regions with low degree of law environment and with CEOs appointed by the largest shareholder. Additional robustness tests using alternative CSR measurements, and two-stage least squares (2SLS) regression support the main findings. This study highlights a new determination channel of private benefits of control and practically guides the introduction of corporate social responsibility activities in emerging markets.

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.

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