Impact of family ownership, management, and generations on IPO underpricing and long-run performance

This paper examines the impact of family ownership, management, and generations on IPO underpricing and the long-run performance of publicly listed firms in Indonesia from 2004 to 2015. This study is based on agency theory, which discusses the relationship between shareholders and management, as well as controlling and non-controlling shareholders. Study results show that IPO underpricing was 28% higher for family firms than non-family firms. Among family firms, a family member’s presence as a Chief Executive Officer (CEO) significantly reduced the level of IPO underpricing. A negative relationship between family CEO and IPO underpricing was only observed if a CEO at the time of IPO was the founder instead of family descendants. A long-run return of family-firm IPOs was more likely to underperform their non-family-firm counterparts. The findings in the primary market suggest that investors predict bigger issues of agency conflicts between controlling and non-controlling shareholders in family firms than the issues of agency conflicts between shareholders and management in non-family firms. Since investors consider family-firm IPOs to be riskier than non-family firms, they demand a higher level of IPO underpricing to compensate for such risks. The results in the secondary market confirm the findings in the primary market.

An Empirical Study on Multiple Corporate Directorships in New Zealand: A New Interpretation of Selected Governance Theories

<p>This thesis contributes to the literature on Multiple Directorships (MDS) by providing new evidence that prestigious MDS are value enhancing relative to non-prestigious MDS for New Zealand listed companies. The recent debate surrounding the reasons for including multiple (busy) directors on the board as well as the diverse conclusions of prior studies on MDS draw attention to the fact that theoretically-informed possibilities of MDS are yet to be explored, especially in a setting where the higher incidence of MDS has been driven by a unique institutional environment. New Zealand is one example of such a setting. To explore one aspect of these issues, this research first asks whether there are firm ‘performance’ differences between prestigious MDS and non-prestigious MDS. The results of initial tests show that prestigious MDS have a positive influence on performance outcomes for their organizations, while there is a negative or no significant relationship between non-prestigious MDS and firm performance. These results also suggest a one-way causal effect of prestigious MDS on firm performance. Having determined the better value of prestigious MDS, the subsequent and primary question of this thesis is to explore ‘why’ differences may exist between the two categories of MDS. Three corporate governance theories, namely, Resource Dependence, Agency and Managerial Hegemony are employed to differentiate, and thus to help explain, the sources of prestigious MDS success. The results of the second set of tests reveal that the differences between prestigious and non-prestigious MDS can primarily be explained by firms’ needs for easier acquisition of critical resources, which are often associated with the level of agency conflicts and the presence of powerful CEOs. Empirical evidence then suggests that prestigious MDS potentially create value for New Zealand companies in terms of facilitating access to critical resources and minimizing agency conflicts as well as CEO influence on board oversight. The findings have potential policy implications, especially in an export-oriented economy with geographic isolation and small scale of population, such as New Zealand. Regulators, for instance, the Financial Markets Authority and Institute of Directors should be mindful of the need to retain expert (prestigious) directors and cautiously evaluate before initiating any new regulation regarding MDS.</p>

An Empirical Study on Multiple Corporate Directorships in New Zealand: A New Interpretation of Selected Governance Theories

<p>This thesis contributes to the literature on Multiple Directorships (MDS) by providing new evidence that prestigious MDS are value enhancing relative to non-prestigious MDS for New Zealand listed companies. The recent debate surrounding the reasons for including multiple (busy) directors on the board as well as the diverse conclusions of prior studies on MDS draw attention to the fact that theoretically-informed possibilities of MDS are yet to be explored, especially in a setting where the higher incidence of MDS has been driven by a unique institutional environment. New Zealand is one example of such a setting. To explore one aspect of these issues, this research first asks whether there are firm ‘performance’ differences between prestigious MDS and non-prestigious MDS. The results of initial tests show that prestigious MDS have a positive influence on performance outcomes for their organizations, while there is a negative or no significant relationship between non-prestigious MDS and firm performance. These results also suggest a one-way causal effect of prestigious MDS on firm performance. Having determined the better value of prestigious MDS, the subsequent and primary question of this thesis is to explore ‘why’ differences may exist between the two categories of MDS. Three corporate governance theories, namely, Resource Dependence, Agency and Managerial Hegemony are employed to differentiate, and thus to help explain, the sources of prestigious MDS success. The results of the second set of tests reveal that the differences between prestigious and non-prestigious MDS can primarily be explained by firms’ needs for easier acquisition of critical resources, which are often associated with the level of agency conflicts and the presence of powerful CEOs. Empirical evidence then suggests that prestigious MDS potentially create value for New Zealand companies in terms of facilitating access to critical resources and minimizing agency conflicts as well as CEO influence on board oversight. The findings have potential policy implications, especially in an export-oriented economy with geographic isolation and small scale of population, such as New Zealand. Regulators, for instance, the Financial Markets Authority and Institute of Directors should be mindful of the need to retain expert (prestigious) directors and cautiously evaluate before initiating any new regulation regarding MDS.</p>

How Does the Accounting Conservatism Affect the Stock Price Crash Risk in Pakistan: The Complementary Role of Managerial and Institutional Ownership

Purpose: The conservatism of accounting and robustness of accounting information disclosure may restrain the irrational behavior of investors and help to reduce the risk of stock price crashes. This study aims to explore this in the context of developing country Pakistan. More specifically, this study investigates the effect of accounting conservatism on stock price crash risk. We also examine the complementary role of managerial and institutional ownership in strengthening this effect. Design/Methodology/Approach: This study conducts the panel data analysis of 155 nonfinancial firms listed in PSX from 2007 to 2019. This study calculates the C-Score to measure accounting conservatism. This study measures the firm’s stock price crash risk by calculating the DUVOL of weekly share prices. Findings: This study finds that there is a significant negative effect of accounting conservatism on firms’ stock price crash risk. This study also finds that managerial ownership enhances the stock price crash risk of the sample firms significantly as a moderator while there is no significant moderating influence of institutional ownership. Implications/Originality/Value: The competent authorities of Pakistan should consider agency conflicts. They should direct the firms’ management to share equal information in time regardless of whether the information is good or bad for stock prices.

Does gender diversity on the board reduce agency cost? Evidence from Pakistan

Purpose This study aims to examine the effects of board gender diversity on agency costs in non-financial firms listed on the Pakistan Stock Exchange (PSX). Design/methodology/approach Multiple regression analysis is used to determine the impact of board gender diversity on agency cost. The research used panel data consisting of 2,062 firm-year observations of 226 non-financial firms listed on the PSX from 2008 to 2019 to test the proposed hypothesis. In addition, the Blau and the Shannon indices were used to checking for robustness. Findings The results indicate that female presence on the board significantly reduces the agency cost and, hence, mitigates the principal-agent conflict. Moreover, consistent with the critical mass theory, it was found that boards with three or more female directors have a stronger impact on reducing the agency cost, as compared to two or fewer female directors on the board. Research limitations/implications The sample was restricted to non-financial firms listed on the PSX only; therefore, the results reflect the attributes of Pakistan’s business environment. A similar analysis in the context of other countries may generate different results. Practical implications The findings imply that female directors play an important role in reducing agency conflicts between shareholders and managers by enhancing monitoring through effective governance mechanisms. The policymakers, therefore, should focus on female career development and encourage professional training programmes to generate a fair, competitive environment for senior female management. Originality/value This study attempts to fill the literature gap in that no similar study covers the non-financial firms’ listed firms in Pakistan. The paper supports the reforms made by the code of corporate governance by making the placement of female directors mandatory on Pakistani corporate boards. Overall, support is provided for the view that regulators should favour gender quotas regarding the composition of the board management team of listed firms to reduce agency conflicts and gain shareholder confidence.

Does Market Power Affect Banking Dividend Policy? Evidence from Nepal

We attempt to explain how market power impacts bank dividend payment behaviors in Nepal by taking the sample from the commercial banking sector employing a panel data regression model. Using the Lerner Index (LI), a non-structural measure of market power or lack of competition, we found that market power inversely but statistically insignificantly affect dividend payment. This finding leads us to conclude that market power-a proxy of more or less competition is not an important and influencing factor to the dividend decisions in commercial banking sectors signifying that competition does not seem helpful in mitigating agency conflicts. It is also concluded that banking dividend payouts are not the result of the punitive influence of product market antagonism. Further, among other firm-specific determinants, bank size and leverage significantly positively whereas asset growth significantly negatively affect the dividend decision. However, profitability is found insignificant determinant of dividend payment. The paper enriches and contributes to the literature on banking dividend payout and helps to identify the key factors that affect banking dividend decision-making. Keywords : Banks, Market competition, Market power, Lerner Index, Nepal

Company valuation and the nonlinear state marginal price vector model under agency conflicts

In the present contribution, the innovative nonlinear state marginal price vector model introduced in Toll and Kintzel (CEJOR 27(4):1079–1105, 2019) (plus Errata herein) is enriched to include budgeting problems under agency conflicts. Under asymmetric information, a company owner as principal can only rely on information transmitted to her from her managers as agents. In the related modeling, it is assumed that slack and capital rationing are optimal. The governing budgeting relations are integrated into a nonlinear framework furnished by a multi-period newsvendor approach and are solved numerically by means of a two-step valuation procedure based on two successive nonlinear convex optimizations. The capital market is assumed to be imperfect. As case study, the M&A-valuation case of a merger of two IT-service companies is considered subjected to optimal combined dimensioning of capacities and budgets under stochastic demand. On balance, by addressing agency conflicts within the well-established nonlinear framework, the practical application field of the valuation procedure is widened.

The influence of private family firm characteristics on audit fees: the family name as a red flag

Purpose This study aims to examine the relationship between family firm characteristics and audit fees. It also examines the extent to which the family name is considered a red flag during the risk assessment of these firm characteristics. Design/methodology/approach Using an external panel data set that includes 1,252 firm-year observations of 204 private German firms with a time series from 2010–2016, regression analyses were conducted to test the hypotheses. Findings This study’s results indicate that family involvement in management and the supervisory board are negatively related to audit fees, suggesting less demand and supply of audit effort due to lower Type I agency conflicts. Family ownership is found to be positively associated with audit fees due to higher Type II agency conflicts. Moreover, the negative effect of family involvement in management on audit fees becomes weaker if the firm name contains the family name, indicating that it is considered a red flag by auditors during their risk assessment. Originality/value Prior studies that examined audit fees in family firms mainly compared family firms to non-family firms. However, auditors are not likely to look at firms in a dichotomous way during their risk assessment, especially as there are numerous definitions of family firms. Instead, they will assess the underlying characteristics regarding management, ownership and governance, although a firm name containing the family name may influence this assessment. This study contributes to the literature by accounting for the heterogeneity of family firms and examining how auditors will assess this heterogeneity.

The Determinants of Tax Aggressiveness in Family Firms: An Investigation of Italian Private Family Firms

A recent stream of research has focused on tax aggressiveness, the downward management of taxable income through tax planning activities, and has analyzed its antecedents and consequences, mainly on public companies. Only very few studies, however, have been carried out in the context of private family business and have investigated whether some family firms are more tax aggressive than others, considering some specific features of family firms, such as their distinctive agency conflicts and socioemotional wealth. In this paper, we investigate the antecedents of tax aggressiveness in a sample of private Italian family firms. Our research findings show that tax aggressiveness is positively associated with ownership concentration, the presence of independent members in the board, and the adoption of reporting mechanisms. Instead, we found a negative relation between tax aggressiveness and the use of both strategic planning and a combination of managerial control systems (both planning and reporting mechanisms). We did not find any relation between family CEO and tax aggressiveness. In summary, overall, our findings show that family involvement in ownership, an independent board. and managerialization (the use of managerial mechanisms) are relevant antecedents of tax aggressiveness in private family businesses.