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Article
Publication date: 5 July 2021

Nadia Smaili, Paulina Arroyo and Faridath Antoinette Issa

The purpose of this study is to investigate whether large blockholders are associated with financial statement fraud at their companies. Although a substantial body of…

Abstract

Purpose

The purpose of this study is to investigate whether large blockholders are associated with financial statement fraud at their companies. Although a substantial body of prior studies has focused on chief executive officers’ motivations to manipulate financial statements, the correlation between majority shareholders and financial statement fraud has received little attention. This paper aims to fill this gap by investigating whether the sample firms have controlling shareholders or executives (i.e. blockholders vs management) and whether financial statement fraud schemes, motivations and consequences differ between blockholder- and management-controlled firms.

Design/methodology/approach

Using a clinical approach, the authors Study 12 Canadian financial statement fraud cases uncovered by the Ontario Securities Commission between 1997 and 2020.

Findings

First, the authors find blockholder control in six cases. These findings infer that these large shareholders received private benefits at the expense of minority shareholders. The comparative analyzes suggest that fraudulent firms controlled by blockholders go bankrupt more often than those controlled by managers. The authors also find that improper disclosure is the most common fraud scheme in blockholder-controlled firms.

Originality/value

The authors conduct a deep analysis of financial statement fraud cases to examine the of blockholder control on the likelihood of financial statement fraud. This paper adds new insights to the research on financial crime by investigating whether large shareholders affect the probability of fraud and the extent to which they might do so.

Details

Journal of Financial Crime, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 8 June 2021

Ibe Ibekwe

The study examines how blockholding, blockholding nationality and multiple blockholder structures (MBS) are related to agency cost in Nigeria.

Abstract

Purpose

The study examines how blockholding, blockholding nationality and multiple blockholder structures (MBS) are related to agency cost in Nigeria.

Design/methodology/approach

Data sourced from the annual reports of 84 non-financial services firms listed on the Nigerian Stock Exchange (NSE) from January 1, 2008, to December 31, 2015, were analyzed using the hybrid model in Stata 15.

Findings

Blockholding showed a significant negative relationship with the expense ratio (ER) measure of agency cost at the between-firm level but not significantly related to asset utilization ratio (AUR). This result was driven more by foreign blockholding and concentration of control, which were negatively and significantly related to the ER. Concentration of control is negatively related to the AUR. Domestic blockholding and the number of blockholders were not significantly related to agency cost. Foreign-blockholder-firms had a significantly greater concentration of control (lesser contest for control) than domestic-blockholder-firms.

Practical implications

The findings suggest that foreign blockholding would be more effective in controlling agency costs in Nigeria. While the concentration of control (lesser contest for control) appears to be an efficient governance mechanism for reducing agency costs associated with expenses in Nigeria, it seems to exacerbate agency costs associated with asset utilization.

Originality/value

Previous researchers have not studied how foreign and domestic blockholding are related to agency cost. They also have not studied how MBS and the contest for control are related to agency cost and explain differences in the foreign/domestic blockholding-agency cost relationships in the Nigerian context.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 1 July 2021

Xiaolin Qian and Lewis Tam

Proper empirical tests of the effect of blockholders’ monitoring incentives on corporate governance are scant in the literature because the relationship between ownership…

Abstract

Purpose

Proper empirical tests of the effect of blockholders’ monitoring incentives on corporate governance are scant in the literature because the relationship between ownership structure and enforcement of corporate governance mechanisms is bidirectional. This study aims to address the endogeneity issue by examining the effect of blockholding on executive turnover–performance sensitivity, using the split-share-structure (SSS) reform in China as an exogenous shock to blockholders’ monitoring incentives.

Design/methodology/approach

This study uses a logit model for estimating the change in executive turnover–performance sensitivity around the SSS reform. Sub-sample analysis is conducted to examine whether the impact of SSS reform on the turnover-performance sensitivity is stronger for firms with more contestable blockholders who might consider stock liquidity, risk sharing and diversification in their monitoring/trading decisions.

Findings

Top executive turnover, defined as CEO or board chair turnover, becomes less sensitive to firm operating performance after the reform, mainly for firms with contestable blockholders prior to the reform. Stock liquidity and blockholders’ demand for diversification can explain the impact of contestable blockholding. Moreover, blockholding is sensitive to firm operating performance after the reform but not before it.

Originality/value

With few exceptions, most studies in the blockholding literature focus on the effect of blockholder monitoring on firm value. Examining an exogenous shock to blockholding, this paper provides a set of new evidence for the impact of blockholding on executive turnover–performance sensitivity. The results call for more evidence of the impact of blockholding on executive turnover from other markets.

Details

Review of Accounting and Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1475-7702

Keywords

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Article
Publication date: 24 December 2020

Peng Huang and Yue Lu

We examine the effect of institutional blockholders on the variability of firm performance.

Abstract

Purpose

We examine the effect of institutional blockholders on the variability of firm performance.

Design/methodology/approach

We use OLS regression models to estimate the effect of institutional blockholders on within-firm, over-time variability of firm performance.

Findings

We find that firms with more institutional blockholders experience less variable firm performance. In particular, more institutional blockholders are associated with less variability of annual stock returns, ROA and the market-to-book ratio. We further explore several underlying mechanisms through with institutional blockholders reduce firm performance variability. We find that more institutional blockholders are associated with less variable capital expenditures and R&D investments, and less frequent acquisition activities.

Research limitations/implications

A limitation of this paper is that our sample period only covers 1996–2006. Future studies can extend our research to a more recent period (e.g. 2009–2019) to test whether our findings remain valid in other periods.

Practical implications

We document a significant relation between institutional blockholders and firm performance variability in this paper. However, we do not make any judgment as to whether firms should increase their institutional blockholders as it is unclear whether the caused reduction in risk-taking is socially efficient. We argue that the value implication of institutional blockholders depends on the existing blockholder structure and the different levels of risk appetite between the CEO and shareholders. Thus, the decision on the increase or decrease of institutional blockholders should be carefully made based on a firm’s specific characteristics.

Originality/value

This paper is a first study which examines the impact of the presence of institutional blockholders on the variability of firm performance, while most prior studies focus on the stock ownership of institutional blockholders and examine its impact on the level of firm performance.

Details

International Journal of Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1743-9132

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Book part
Publication date: 1 October 2015

Nilanjan Basu, Imants Paeglis and Mohammad Rahnamaei

We examine the influence of ownership structure on a blockholder’s power in a firm. We first describe the presence and ownership stakes of blockholders in a comprehensive…

Abstract

We examine the influence of ownership structure on a blockholder’s power in a firm. We first describe the presence and ownership stakes of blockholders in a comprehensive sample of US firms. We develop a measure of the influence of the ownership structure on a blockholder’s power and show that an average blockholder loses 12% of her potential power due to the presence and size of the ownership stakes of other blockholders. Further, the influence of ownership structure varies systematically with a blockholder’s rank and identity, with the second and nonfamily manager blockholders experiencing the largest loss of power.

Details

International Corporate Governance
Type: Book
ISBN: 978-1-78560-355-6

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Article
Publication date: 14 October 2013

Oneil Harris, Jeff Madura and Charmaine Glegg

Agency theory suggests that if managers are not monitored, takeover negotiations may be contaminated by agency conflicts, which may weaken a firm's bargaining position…

Abstract

Purpose

Agency theory suggests that if managers are not monitored, takeover negotiations may be contaminated by agency conflicts, which may weaken a firm's bargaining position. This paper argues that some blockholders are more effective monitors than others, and tests whether the negotiating power of a target or bidder is influenced by their respective blockholder composition. The paper aims to discuss these issues.

Design/methodology/approach

This paper classifies target and bidder outside blockholders as either aggressive monitors or moderate monitors, and tests whether the degrees of monitoring effectiveness influence a firm's share of the total wealth created by the takeover (a proxy for bargaining power).

Findings

This paper finds that firms that have the types of outside blockholders with a greater tendency to monitor managers elicit higher takeover gains. This suggests that negotiating power in takeovers is conditioned on the types of blockholders that monitor the target and bidder. The results support the premise that better monitoring leads to higher gains for shareholders in a takeover. In particular, the findings suggest that the greater the tendency of outside blockholders to monitor managers, the lower the level of takeover-related agency conflicts and the stronger a firm's relative bargaining power.

Originality/value

These findings imply that agency conflicts on either side of a takeover bid may be reduced by better monitoring, but especially among bidders.

Details

Managerial Finance, vol. 39 no. 11
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 4 April 2016

Zhonghui Hugo Wang

The purpose of this paper is to complement existing research of the relationship between concentrated ownership and firm performance by theoretically exploring the impact…

Abstract

Purpose

The purpose of this paper is to complement existing research of the relationship between concentrated ownership and firm performance by theoretically exploring the impact of outside blockholders on the firm, primarily from the perspective of voting power.

Design/methodology/approach

This paper proposes theoretical propositions based on analyses and logical extension of results of the existing theoretical and empirical studies.

Findings

This paper proposes three theoretical predictions: First, voting power provides outside blockholders a necessary condition to pursue shared and private benefits of control, and it is positively correlated with blockholders’ capability of influencing firm value. Second, everything else being equal, an outside blockholder is more (less) likely to pursue private benefits than shared benefits when the equity market is efficient and when the blockholder’s voting power is less (more) than 50 per cent. Third, controlling outside blockholders can capitalize on their voting power to appoint managerial delegates and board representatives to the invested firms for the purpose of pursuing private benefits of control.

Originality/value

This paper tries to make two contributions to the corporate governance literature. First, this research relies on a new perspective to explore the relationship between ownership structure and firm value. Second, this paper presents the first theoretical argument which states that controlling outside blockholders rely on their managerial delegates and board representatives to pursue their private benefits of control.

Details

Corporate Governance, vol. 16 no. 2
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 27 May 2014

Lin Zheng, Nauzer Balsara and Haiyu Huang

This paper aims to investigate the relationship between external regulation pressure and corporate social responsibility (CSR) reporting decision and comprehensiveness and…

Abstract

Purpose

This paper aims to investigate the relationship between external regulation pressure and corporate social responsibility (CSR) reporting decision and comprehensiveness and the relationship between block ownership and CSR in China.

Design/methodology/approach

This paper provides descriptive statistics of the current state of CSR reporting in China. In addition, regression models are utilized to analyze the behavior of CSR reporting of a sample of 5,334 listed firms in China.

Findings

Our paper records a significant increase of CSR reporting in the period of 2008-2010. Using a sample of 5,334 listed firms in China, we find a positive yet weak association between centrally controlled state-owned enterprises (SOEs) and CSR reports. Moreover, we find that firms with more concentrated block ownership are less likely to issue CSR reports.

Research limitations/implications

Taken as a whole, our analyses suggest that the entrenchment effect from blockholders seems to dominate the incentive effect and this depresses the quality of CSR reports.

Practical implications

Despite the well-known effect of economic factors on CSR decision, corporate governance such as ownership structure could complicate the final results. Furthermore, the institutional background of the country and its implications for corporate governance should be considered jointly and concurrently.

Social implications

The positive effect from regulatory pressure on centrally owned SOEs suggests that regulation remains an effective tool to encourage CSR reporting in emerging markets.

Originality/value

First, our study confirms prior research that CSR disclosure decision is primarily driven by economic and strategic considerations. Moreover, our results suggest that a country’s institutional background, in addition to economic and strategic considerations, influences the decision and quality of CSR disclosures. Second, we extend the literature on ownership structure, particularly with respect to blockholders. Third, our research design addresses a weakness in earlier studies which are biased exclusively on state ownership to the exclusion of all other blockholders.

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Article
Publication date: 1 December 2014

Nilanjan Basu

The purpose of this paper is to review recent research on the structure of equity ownership and its impact on firm value. In doing so, the paper outlines the main issues…

Abstract

Purpose

The purpose of this paper is to review recent research on the structure of equity ownership and its impact on firm value. In doing so, the paper outlines the main issues, surveys the more recent work, and highlights the most promising developments on this topic.

Design/methodology/approach

The paper is a survey – as such there is no relevant research design.

Findings

The paper commences from multiple surveys done a decade ago that find that the evidence on this topic is inconclusive. Since then, researchers have developed several promising lines of inquiry. These approaches – specifically the new focus on the identity of the blockholders, multiple blockholder interactions, as well as the use of structural modeling, and the use of changes in insider ownership – hold some promise of being able to provide more definitive answers.

Research limitations/implications

The paper suggests that current researchers focus on newer approaches to analyzing the structure of equity ownership. Specifically, for research on blockholder ownership, the identity of blockholders as well as the interaction between blockholders are promising approaches to this topic. For research on insider ownership, structural models that have become recently popular as well as an emphasis on changes rather than levels of insider ownership are promising avenues of inquiry.

Originality/value

The paper summarizes the state of research on the structure of equity ownership and in doing so provides a quick introduction to a researcher new to this topic. In addition, the paper highlights the most promising areas of inquiry on this topic.

Details

Managerial Finance, vol. 40 no. 12
Type: Research Article
ISSN: 0307-4358

Keywords

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Article
Publication date: 22 May 2007

Zsolt Bedő and Barnabás Ács

The purpose of this paper is to assess the relationship between ownership structure and company performance of public companies. The central tenet of the analysis is that…

Abstract

Purpose

The purpose of this paper is to assess the relationship between ownership structure and company performance of public companies. The central tenet of the analysis is that separation of ownership and control has an adverse effect on the value of the firm, as information asymmetry between owners and managers is exploited by management.

Design/methodology/approach

A cross sectional regression is conducted using data on 669 companies, which were members of the S&P 500, BUX (Hungary), WIG (Poland), SBI (Slovenia), PX (Czech) indexes in the third quarter of 2005. Owners with at least 5 percent share ownership are collected from Reuters and Business and Company Resource Center databases.

Findings

Results for CEE companies are in line with that of Earle et al. and also support Zwiebel's “space creation” concept. The negative effect of multiple shareholdings is due to collective action problems instead of alternative explanations such as manager repression. Companies in the CEE region have rather concentrated ownership, which implies that at least there is one blockholder with dominant stake allowing him to influence corporate decision making. The contribution to management control of the next largest blockholder generates tension between the two causing costs that exceed the benefits of control. Interestingly, enough in case of institutional investors as largest blockholders the formerly positive effect on performance became negative. This is in contradiction with the popular literature that emphasizes the beneficent role of institutional investors. Results for the US firms also show that dominant blockholders “create their own space” in another word when the ownership stake of the largest blockholder exceeds 10 percent the contribution of smaller owners to the monitoring and control of management is negative. This implies that even though the dominant blockholder is much smaller in size relative to the one in the CEE sample its willingness to cooperate is low. On the other hand, when the largest blockholder is not dominant the coalition of blockholders is able to create value by efficient monitoring. Institutional investor as dominant blockholder further enhances the efficiency of control, while decreases it when coalition consists solely from institutional investors.

Originality/value

The definition of ownership concentration outlined by Zwiebel is applied. To assess the effect of coalition of blockholders on company performance the concept determined by Earle et al. is used. Their notion is extended by differentiating between blockholder identity and the homogeneity of blockholder coalition, in order to scrutinize the consequence of shareholder activism.

Details

Baltic Journal of Management, vol. 2 no. 2
Type: Research Article
ISSN: 1746-5265

Keywords

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