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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, surveys…

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

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 sample…

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

Keywords

Article
Publication date: 21 March 2023

Abdulaziz Ahmed Alomran

This study aims to investigate the impact of ownership by large shareholders (blockholders) on corporate cash holdings. The study further investigates heterogeneity in the…

Abstract

Purpose

This study aims to investigate the impact of ownership by large shareholders (blockholders) on corporate cash holdings. The study further investigates heterogeneity in the relationship between blockholder ownership and corporate cash holdings.

Design/methodology/approach

Building on the precautionary and agency motives of corporate cash holdings, the study focuses on publicly listed firms from 22 European countries for the period from 2006 to 2015. Multiple pooled ordinary least square and fixed effects regression models are employed to examine the relationship between blockholder ownership and firms’ cash holdings.

Findings

This study documents a positive relationship between blockholder ownership and corporate cash holdings which indicates the role of blockholders in influencing firms’ cash holdings policies. However, further analyses show that the effect of blockholding on cash holdings depends on the type of blockholder. While the relationship is still positive between cash holdings and ownership by strategic blockholders, it turns negative for the ownership by institutional blockholders.

Research limitations/implications

This study provides evidence for the important role played by firms’ ownership structures, and especially blockholding, in shaping firms’ cash holdings decisions. The findings are therefore of great value for investors, firms’ management and board and policy makers.

Originality/value

This paper contributes to the literature by providing an explanation of the contradictory results documented in the literature on the impact of blockholders on corporate cash holdings. This study, to the best of the author’s knowledge, is the first to examine the effect of blockholder ownership on cash holdings by distinguishing between different types of blockholder.

Details

International Journal of Managerial Finance, vol. 20 no. 1
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 16 November 2015

Manel Hessayri and Malek Saihi

The purpose of this paper is to examine whether International Financial Reporting Standards (IFRS) adoption complements corporate governance factors (e.g. ownership structure) in…

1654

Abstract

Purpose

The purpose of this paper is to examine whether International Financial Reporting Standards (IFRS) adoption complements corporate governance factors (e.g. ownership structure) in monitoring managers’ discretional behavior in an emerging market context.

Design/methodology/approach

The paper relies on a sample of listed companies in the United Arab Emirates, Morocco, South Africa and the Philippines during an eight-year period on average (four years of pre-adoption period and four years of post-adoption period).

Findings

The authors find no evidence of lower earnings management after the switch to IFRS reporting, suggesting that managerial discretional behavior is insensitive to a firm’s IFRS adoption. However, the authors document effective monitoring role of a firm’s ownership structure on earnings management. More interestingly, institutional investors are effective in constraining earnings management when holding a high level of ownership. Moreover, the effect of blockholders and institutional blockholders varies as their ownership rises following a non-linear pattern.

Research limitations/implications

First, the assumption that discretionary accruals are adequate measure of earnings management may be criticized in different ways. Second, the findings, performed on listed companies in the United Arab Emirates, Morocco, South Africa and the Philippines, should be interpreted with caution and cannot be generalized to all emerging market countries.

Practical implications

Standards setters and market authorities should be aware of earnings management determinants to set adequate and fitting accounting standards limiting opportunistic behavior of managers and mainly to set up training programs to accounting professionals improving the IFRS implementation. Moreover, considering specific features of firms in emerging market countries related to ownership structure, international investors may rely on such criteria to evaluate firms. Finally, auditors should be aware of different incentives for earnings management in order to be able to detect eventual manipulation of accounting earnings.

Originality/value

This paper provides a timely contribution to the continuous debate of the effect of IFRS adoption on earnings management in a poorly exploited setting, emerging market context. When investigating, additionally, the eventual non-linear effect of institutional ownership, block ownership, institutional block ownership and non-institutional block ownership on earnings management, a major contribution is that it brings to light the finding of a differential influence of ownership levels on earnings management.

Details

Journal of Economic and Administrative Sciences, vol. 31 no. 2
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 5 February 2018

Manel Hessayri and Malek Saihi

The purpose of this paper is to analyze the firm’s capital market benefits in a high-quality information setting. More specifically, the authors address the question of whether…

Abstract

Purpose

The purpose of this paper is to analyze the firm’s capital market benefits in a high-quality information setting. More specifically, the authors address the question of whether the commonly documented IFRS benefits are capable of influencing inducing shareholders to increase their equity investment in adopting firms.

Design/methodology/approach

This study is performed on publicly listed firms in three emerging countries, namely, Morocco, South Africa and Turkey. The design of the ownership database allows a panel analysis for the years 2001 through 2011. The trend approach is suitable to account for concurrent effects that are unrelated to financial reporting while controlling for time-lasting behavior of investors. Overall, a minimum of four-year periods before and after the IFRS adoption date are warranted.

Findings

Overall, the findings support evidence of increases in equity holdings following a firm’s IFRS adoption. More specifically, institutional investors and institutional blockholders (both domestic and foreign) invest more heavily in the stocks of the firms that have committed to IFRS. By contrast, the authors fail to report evidence for ownership by blockholders and controlling shareholders.

Practical implications

The current empirical work should be of value to international investors, policy makers and market authorities. As for international investors facing reduced information disadvantage and comparable financial information across worldwide markets, they will find it easier to select and invest in value-creating stocks. This study may be useful for policy makers in acquiring a clear view of advantages, challenges and relevance of IFRS adoption to emerging markets. In particular, this study contributes to an understanding of potential capital market consequences of IFRS adoption. Furthermore, market authorities should be aware of the importance of institutional framework to enhance IFRS implementation and usage.

Originality/value

This work contributes to the ongoing empirical research on the intended capital market benefits of IFRS. The authors provide deeper insight into shareholdings changes of a number of key investors in a context where supply and demand of information are stained with asymmetry and mostly, influenced by differences in accounting practices. A major contribution of this study is the use of a methodological approach that outperforms commonly used approaches in the way how it considers concurrent events (compared to the shift specification) and time-lasting investor behavior (compared to the difference-in-differences analysis).

Details

Journal of Accounting in Emerging Economies, vol. 8 no. 1
Type: Research Article
ISSN: 2042-1168

Keywords

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. This paper…

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

Keywords

Article
Publication date: 26 September 2022

Sethiya Anuja and Thenmozhi M.

This study explores whether product market competition is a substitute for or complementary to good internal governance through promoter holdings. Specifically, it examines the…

Abstract

Purpose

This study explores whether product market competition is a substitute for or complementary to good internal governance through promoter holdings. Specifically, it examines the impact of product market competition on the linkage between promoter ownership and firm value and investigates whether this impact varies with the type of blockholders and level of ownership.

Design/methodology/approach

The authors used a fixed-effect panel regression method to analyze 1,136 National Stock Exchange-listed firms with 10,770 observations between the years 2005 and 2017. The authors computed product market competition using the Hirschman–Herfindahl Index and used the two-stage least squares regression model to address the issue of endogeneity.

Findings

Competition is a substitute for good corporate governance, especially in highly competitive industries, while promoters enhance firm value only in less competitive industries. This supports the theory that competition hinders a manager's “quiet life” hypothesis and creates disciplinary pressure to perform well. Additionally, the authors find that competition acts as a complement to promoters who are state-owned blockholders, while it acts as a substitute for promoters who are family-owned and private-owned blockholders.

Originality/value

This is possibly among the earliest attempts to integrate promoter ownership, product market competition, and firm value with the type of blockholder, especially in the context of the Indian market after 2005. The authors also provide evidence of situations in which both external and internal governance mechanisms either synergize or mitigate each other.

Details

Managerial Finance, vol. 49 no. 2
Type: Research Article
ISSN: 0307-4358

Keywords

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 the…

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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.

Article
Publication date: 1 March 2004

Richard H. Fosberg

In previous research, Friend and Hasbrouck theorized that managerial insiders (officers and directors) have a personal incentive to cause the firm to use less than the optimal…

6751

Abstract

In previous research, Friend and Hasbrouck theorized that managerial insiders (officers and directors) have a personal incentive to cause the firm to use less than the optimal amount of debt in its capital structure. They suggested this occurs because officers and directors have a large proportion of their personal wealth invested in the firm in the form of common stock holdings and firm‐specific human capital. This makes managerial insiders reluctant to use the optimal amount of debt financing for the firm because of the additional bankruptcy risk higher levels of debt engender. I test FH’s theory and find evidence that supports it. Specifically, the amount of debt in our sample firms’ capital structures declines as the percentage of the firm’s common stock held by the CEO and other officers and directors increases. A direct relationship is found between blockholder share ownership and our sample firms’ debt/equity ratio. This suggests that monitoring by blockholders is effective in controlling the suboptimal debt usage agency problem. Further, for any given level of blockholder share ownership, the greater the number of blockholders a firm has the less effective blockholders are in raising the amount of debt in the firm’s capital structure. Lastly, some weak evidence was found suggesting that a dual leadership structure was effective in increasing the amount of debt in a firm’s capital structure.

Details

Corporate Governance: The international journal of business in society, vol. 4 no. 1
Type: Research Article
ISSN: 1472-0701

Keywords

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. 18 no. 1
Type: Research Article
ISSN: 1743-9132

Keywords

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