Ownership and Control Divergence on Firm Value
Keywords:
Pyramid structure, firm value, cash flow right, control right, Attig Model, MalaysiaAbstract
The aim of this study is to provide an empirical evidence of the implication of pyramid firm towards firm value. Previous research have documented that in many East Asian firms, the ultimate owners showed a dispersion in actual ownership and control due to ownership concentration in pyramid firm leading to expropriation of minority shareholders’ interest. The study adapts the model by Attig using Malaysian pyramidal firms for the period 1990 to 2010. The results reveal that pyramid structure may have detrimental influence on firm value particularly for low cash flow right (CFR) ratio firms. Future research needs to focus on identifying the heterogeneous factors that improve the generalizability of the research.
References
Almeida, H.V. & Wolfenzon, D. (2008). A theory of pyramidal ownership and Family Business Group. The Journal of Finance, LXI (6), 2637-2680.
Anderson, C., & Fraser, R.D. (2000). Corporate control, bank risk taking and the health of the banking industry. Journal of Banking and Finance, 24, 1383-1398.
Attig, N., Fischer, K., & Gadhoum, Y. (2003). On the determinants of pyramidal ownership: Evidence on dilution of minority interests. Halifax, Nova Scotia: Sobey School of Business, Saint Mary’s University.
Attig, N., Fong, W-M., Lang, L. & Gadhoum, Y. (2006). Effects of large shareholding on information asymmetry and stock liquidity. Journal of Banking and Finance, 30 (10), 2875-2892.
Bany-Ariffin, A.N., Agus-Harjito, D., & Zunaidah, S. (2009). Pyramidal firms and dividend payout announcement in Indonesia: A Note. International Applied Economics and Management Letters.
Bebchuk, L.A., Reiner, K. & Triantia, G. (2000). Stock pyramids and dual class equity: Mechanism of agency cost of separating control and ownership. Working Paper, Harvard Law School, USA, 12-17.
Berle, A.A. & Means, G.C. (1932). The modern corporation and private property. Commerce Clearing House, New York.
Bertrand, M., Mehta, P. & Mullanaithan, S. (2000). Ferreting out tunneling: An application to Indian Business Groups. Working Paper, National Bureau of Economic Research.
Bhide, A. (1993). The hidden costs of stock market liquidity. Journal of Financial Economics, 34, 31-51.
Bozec, Y., & Laurin, C. (2008). Large shareholder entrenchment and performance: Empirical evidence from Canada. Journal of Business Finance and Accounting, 35, 25-49.
Bunkanwanicha, P. & Wiwattanakantang, Y. (2008). Allocating risk across pyramidal tiers: Evidence from Thai Business Group. Tokyo, Japan: Institute of Economic Research, Hitotsubashi University.
Chapelle, A. (2005). Separation between ownership and control: Where do we stand?. Journal of Corporate Ownership and Control, 2, 91-101.
Cheung, Y.L., Jing, L., Lu, T., Rau, P.R. & Stauraitis, A. (2009). Tunnelling and propping up: An analysis of Related Party Transaction by Chinese Listed Companies. Pacific-Basin Journal, 17, 372-393.
Claessens, S., Djankov, S., & Lang, L.H.P. (1999). Who control East Asian Corporations?. World Bank Working Paper No. 2054.
Claessens, S., Djankov, S., & Lang, L.H.P. (2000/2000a). The separation of ownership and control in East Asian Corporations. Journal of Financial Economics, 58, 81-112.
Claessens, S., Djankov, S., Fan, J.P.H., & Lang, L.H.P. (2000b). The costs of group affiliation: Evidence from East Asia. Retrieved from http://rru.worldbank.org/research/interest/prr stuff?working papers?2088.pdf.
Claessens, S., Djankov, S., Fan, J.P.H., Lang, L.H.P. (2002). Disentangling the incentive and entrenchment effects of large shareholding. The Journal of Finance, 57, 2741-2771.
Claessens, S., Fan, J.PH. & Lang, L.H.P. (2006). The benefits and costs of Group Affiliation: Evidence from East Asian. Emerging Markets Review, 7, 1-26.
Easley, D., Kiefer, M.N., O’Hara, M. & Paperman, B.J. (1996). Liquidity, information and infrequently traded stocks. Journal of Finance, 51, 1405-1436.
Faccio, M., Lang, L.H.P. & Yeung, L. (2001, 2002). Dividends and expropriation. The American Economic Review, 91 (1), 54-78.
Faccio, M., & Lang, L.H.P. (2002). The ultimate ownership of Western European Corporations. Journal of Financial Economics, 65, 365-395.
Fan, J.P.H., & Wong, T.J. (2002). Corporate ownership structure and the informativeness of accounting earnings in East Asia. Journal of Accounting and Economics, 33, 401-425.
Fan, J.P.H., & Wong, T.J. (2005). Do external auditors perform a corporate governance role in emerging markets?: Evidence from East Asia. CFA Digest, 35, 22–33.
Fauzias, M.N., & Bany-Ariffin, A.N. (2005). Pyramiding effect on firm’s investment decision among Malaysian Distress Companies. Journal of Corporate Ownership and Control, 3, 163-172.
Fauzias, M.N., & Zunaidah, S. (2007). The interaction effect between ownership structure and board governance on dividends: Evidence from Malaysian Listed Firms. Proceedings of the Malaysian Finance Association 9th Annual Conference, Shah Alam, Selangor, Malaysia: UKM and UPM.
Gadhoum, Y., Noiseux, M.H. & Zeghal, D. (2005). Demystifying the illusion of the positive effects of ownership concentration on corporate performance. University of Quebec, Canada.
Gomez, M.L., Nunez-Nickel, M. & Gutierrez, I. (2001). The role of family ties in agency contracts. Academy of Management Journal, 44 (1), 81–95.
Grossman, S.J. & Hart, O.D. (1988). One share one vote and the market for corporate control. Journal of Financial Economics, 20, 175-202.
Haniffa, R. & Hudaib, M. (2006). Corporate governance structure and performance of Malaysian Listed Companies. Journal of Business Finance and Accounting, 33 (7/8), 1034-1062.
Harris, M. & Raviv, A. (1998). Capital budgeting and delegation. Journal of Financial Economics, Elsevier, 50 (3), 259-289.
Holmstrom, B. & Tirole, J. (1993). Market liquidity and performance monitoring. Journal of Political Economy, 101 (4), 678-709.
Hughes, J.P. (2009). Corporate value, ultimate control and law protection for investor in Western Europe. Management Accounting Research, 20, 41-52.
Jensen, M.C. & Meckling, W.H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3 (4), 305–360.
Johnson, S., La Porta, R., Lopez, F., & Shleifer, A. (2000). Tunneling. American Economic Review, 90, 22-27.
Khanna, T., & Palepu, K. (2000). Is group affiliation profitable in emerging markets?: An analysis of diversified Indian Business Group. The Journal of Finance, LV, 867-891.
Khatri, Y., Leruth, L. & Piesse, J. (2002). Corporate performance and governance in Malaysia. IMF Working Paper No. 02/152, Washington: International Monetary Fund.
La Porta, R., Lopez, F. & Shleifer, A. (1999). Corporate ownership around the world. Journal of Finance, American Finance Association, 55 (1), 1-33.
La Porta, R., Lopez, F., Shleifer, A., & Vishny, R. (2002). Investor protection and corporate valuation. Journal of Finance, 57, 1147–1170.
Lemmon, M.L., & Lins, K.V. (2003). Ownership structure, corporate governance and firm value: Evidence from East Asian financial crisis. The Journal of Finance, LVIII, 1445-1468.
Miguel, A., Pindado, J. & de-la Torre, C. (2005). How do entrenchment and expropriation phenomena affect control mechanism?. Corporate Governance, 13 (4), 505-516.
Miller, D., Le Breton-Miller, I., Lester, R.H. & Cannella, A.A. (2007). Are family firms really superior performers?. Journal of Corporate Finance, 13 (5), 829–858.
Mitton, T. (2002). A cross-firm analysis of the impact of corporate governance on the East Asian financial crisis. Journal of Financial Economics, 64, 215-241.
Onder, Z. (2003). Ownership concentration and firm performance: Evidence from Turkish Firms. METU Studies in Development, 30 (2), 181-203.
Perotti, E.C. & Gelfer, S. (2001). Red barons or robber barons?: Governance and investment in Russian Financial-Industrial Groups. European Economic Review, 45.
Shamsul, N.A. (2006). Board structure and ownership in Malaysia: The case of Distressed Listed Companies. Corporate Governance, 6, 582-594.
Shleifer, A. & Vishny, R.W. (1997). A survey of corporate governance. Journal of Finance, 52, 737-782.
Stein, J.C. (1997). Internal capital markets and the competition for corporate resources. Journal of Finance, 52, 111-133.
Surajit, B. & Saxena, A. (2009). Does the firm size matter?: An empirical enquiry into the performance of Indian Manufacturing Firms. Retrieved from http://ssrn.com/abstract=1300293.
Tran, T.Q.G. (2005). Ownership structure and firm performance in transition countries: The case of European Union New Members. Dans FMA European Conference 2005.
Yosra, G. & Ben Ouda Sioud, O. (2011). Ultimate ownership structure and stock liquidity: Empirical evidence from Tunisia. Studies in Economics and Finance, 28 (4), 282-300.
