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Article
Publication date: 24 March 2021

Ruchi Moolchandani and Sujata Kar

This paper examines whether family control exerts any influence on corporate cash holdings in Indian listed firms. It also examines how this accumulated cash of family…

Abstract

Purpose

This paper examines whether family control exerts any influence on corporate cash holdings in Indian listed firms. It also examines how this accumulated cash of family firms impacts firm value.

Design/methodology/approach

The study uses dynamic panel data regression estimated using two-step system generalized method of moments (GMM) on S&P BSE 500 firms during 2009–2018 for testing the repercussions of family control on the cash levels of a firm. Further, fixed effects regression has been employed for the valuation analysis.

Findings

Estimation results showed that family control negatively impacts cash holdings in Indian firms. Further, the cash accumulation by family firms adversely affects the market valuation of the firm. These findings signal a principal–principal (P-P) agency conflict in Indian family firms, i.e. friction between family owners and minority shareholders' interests. Minority shareholders fear that a part of the cash reserves will be used by family members for personal benefits. Thus, they discount cash reserves in family firms.

Originality/value

The study adds to the determinants of corporate cash holdings in emerging markets. To the best of the authors’ knowledge, this is the first study from India investigating family control as a determinant of cash policy. It sheds light on the P-P agency conflict in Indian family firms. P-P agency conflict is less researched in cash holdings literature as opposed to the principal–agent managerial disputes. Also, the study uses a more comprehensive definition of family control rather than just considering the ownership as used in prior cash holding research.

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: 6 November 2018

Sang Ho Kim and Yohan An

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…

Abstract

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.

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Article
Publication date: 13 February 2018

Fabrizio Rossi, Robert Boylan and Richard J. Cebula

The purpose of this study is to investigate the relationship between financial decisions and ownership structure by using the control contests on a sample of Italian…

Abstract

Purpose

The purpose of this study is to investigate the relationship between financial decisions and ownership structure by using the control contests on a sample of Italian listed companies.

Design/methodology/approach

The analysis adopts a balanced panel data set of 984 firm-year observations for the period of 2002-2013, with estimation using a generalized method of moments.

Findings

The results appear to confirm both the hypotheses of the alignment of interests and the entrenchment effect. The entrenchment and alignment effects are not found to be alternatives but rather are found to co-exist. The presence of a coalition of minority shareholders acts as a tool to control agency costs, particularly when the coalition is instrumental in the contestability of corporate control.

Practical implications

These findings suggest that minority shareholders may have a larger impact than previously identified by strategically aligning with other shareholders to form coalitions. This study provides several practical implications. First, dividend payout is not necessarily a good instrument to control and monitor agency costs. This is because the payout can be used to expropriate benefits from the minority shareholders. Second, high ownership concentration does not always reduce agency costs. Third, a non-collusive coalition can be more useful in the monitoring of agency costs than other tools, such as the debt level.

Originality/value

This study shows that there is considerable value to the firm when individual blockholders come together in a contestable environment and become instrumental in making business decisions. The results support the contention that contestability is an excellent deterrent to dampen the expropriation of benefits to minority shareholders. This study also provides evidence that cash holding can be a good substitute for dividends and debt in the effort to limit agency costs.

Details

Corporate Governance: The International Journal of Business in Society, vol. 18 no. 3
Type: Research Article
ISSN: 1472-0701

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Book part
Publication date: 11 August 2014

Ben Amoako-Adu, Vishaal Baulkaran and Brian F. Smith

The chapter investigates three channels through which private benefits are hypothesized to be extracted in dual class companies: excess executive compensation, excess…

Abstract

Purpose

The chapter investigates three channels through which private benefits are hypothesized to be extracted in dual class companies: excess executive compensation, excess capital expenditures and excess cash holdings.

Design/methodology/approach

With a propensity score matched sample of S&P 1500 dual class and single class companies with concentrated control, the chapter analyzes the relationship between the valuation discount of dual class companies and measures of excess executive compensation, excess capital expenditure and excess cash holdings.

Findings

Executives in dual class firms earn greater compensation relative to their counterparts in single class firms. This excess compensation is more pronounced when the executive is a family member. The value of dual class shares is discounted most when cash holdings and executive compensation of dual class are excessive. Excess compensation is highest for executives who are family members of dual class companies. The dual class discount is not related to excess capital expenditures.

Originality/value

The research shows that the discount in the value of dual class shares in relation to the value of closely controlled single class company shares is directly related to the channels through which controlling shareholder-managers can extract private benefits.

Details

Advances in Financial Economics
Type: Book
ISBN: 978-1-78350-120-5

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Book part
Publication date: 9 September 2020

Alan T. Wang and Anlin Chen

The information of pledging stocks for liquidity by controlling shareholders of publicly traded firms in Taiwan has been required to disclose since 1998. A common…

Abstract

The information of pledging stocks for liquidity by controlling shareholders of publicly traded firms in Taiwan has been required to disclose since 1998. A common perception by market practitioners in Taiwan is that stock pledging by controlling shareholders is an indication of expropriation of firms. This study first examines the determinants of the tendency that controlling shareholders of firms in Taiwan pledge their stocks to financial institutions for liquidity and then evaluates how stock pledging by controlling shareholders affects their firms' accounting and financial performances. Determinants of firm attributes, market conditions, and corporate governance are identified. The tendency of stock pledging by controlling shareholders has a negative effect on accounting and financial performances. The negative effect on firm performance is reduced when the firm has a higher level of working capital. These findings indicate that stock pledging by controlling shareholders is an indication of weak corporate governance when the firm has lower liquidity. These findings may provide insights to the equity markets of the other countries in which public firms have more concentrated ownerships.

Details

Advances in Pacific Basin Business, Economics and Finance
Type: Book
ISBN: 978-1-83867-363-5

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Article
Publication date: 8 January 2018

Jin Ho Park, Kwangwoo Park and Ronald Andrew Ratti

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.

Abstract

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.

Details

Managerial Finance, vol. 44 no. 1
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 April 1970

SIDE by side with a steady reduction in the natural resources of the world there is a rapid increase in the amount of information available on almost every subject. Every…

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Abstract

SIDE by side with a steady reduction in the natural resources of the world there is a rapid increase in the amount of information available on almost every subject. Every year human beings generate more knowledge in the social, economic and scientific fields. So vast is the flood that the task of finding relevant information on a particular subject at the right time is of a magnitude impossible to imagine fifty years ago.

Details

Work Study, vol. 19 no. 4
Type: Research Article
ISSN: 0043-8022

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Article
Publication date: 1 November 1997

R. Dobbins and B.O. Pettman

A self‐help guide to achieving success in business. Directed more towards the self‐employed, it is relevant to other managers in organizations. Divided into clear sections…

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10930

Abstract

A self‐help guide to achieving success in business. Directed more towards the self‐employed, it is relevant to other managers in organizations. Divided into clear sections on creativity and dealing with change; importance of clear goal setting; developing winning business and marketing strategies; negotiating skills; leadership; financial skills; and time management.

Details

Journal of Management Development, vol. 16 no. 8
Type: Research Article
ISSN: 0262-1711

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Article
Publication date: 1 January 1988

Jerome Yavarkovsky

Librarians rarely see themselves as business managers. We are offered few options for fiscal, accounting, or budgetary courses in our formal graduate training. More…

Abstract

Librarians rarely see themselves as business managers. We are offered few options for fiscal, accounting, or budgetary courses in our formal graduate training. More important, few of us consider that at some point in our careers we will have to manage a business — sometimes as custodian of a major financial enterprise, sometimes as manager of a small‐ to medium‐size department or library. But, from the reading room open only part‐time to the major research library, funds must be received, accounted for, and dispersed. There are fiduciary responsibilities in every library. Not only are there the obvious responsibilities for payroll; the control of acquisitions; the purchasing of operating supplies, equipment, and furnishings; there are also responsibilities for the handling of cash in many libraries. Fines, photocopy services, database services, interlibrary loan, equipment and facilities rentals, and book sales are common sources of cash transactions. At a minimum, there is usually a change fund to provide coins for public telephones and photocopy or other vending machines. The procedures for receiving, handling, controlling, accounting for, and reporting on cash receipts are as numerous and variable as the libraries themselves.

Details

The Bottom Line, vol. 1 no. 1
Type: Research Article
ISSN: 0888-045X

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Article
Publication date: 2 January 2018

Nikos Passas

Response to suggestion that EU-wide cash payment limits would assist in the control of terrorism finance and money laundering.

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Abstract

Purpose

Response to suggestion that EU-wide cash payment limits would assist in the control of terrorism finance and money laundering.

Design/methodology/approach

Desk review and interviews

Findings

The inception impact assessment (IIA) is ill-conceived, not grounded on firm empirical evidence and harmful to both crime control and the legitimate interests and rights of the EU citizens. The action under discussion is presented as a measure against terrorism finance, serious crime and tax evasion. The problem is that these criminal acts correspond to very different methods, volumes, perpetrators, causes and control challenges. Cash payment limitations (CPLs) are nowhere near a panacea that can address all of them and cannot make any of them go away magically. Even when each of these crime challenges are considered on their own, the empirical linkage of CPLs to effective controls is not there. The evidence from EU countries with CPLs in place shows higher levels of informal economy, corruption, tax evasion and terrorism risks than those without. There is substantial evidence of non-cash, very serious and organized crime, while the amounts needed and used by terrorists in Europe are usually very small in cash transactions, way below the thresholds under consideration. In fact, determined offenders will shift to other methods and become more sophisticated, posing new problems to controllers. Displacement and incentives for better-organized crime may well be the main products of such measures.

Originality/value

It counters the argument that the cash payment limits can help reduce serious crime, while pointing to several adverse consequences on legitimate interests and human rights.

Details

Journal of Financial Crime, vol. 25 no. 1
Type: Research Article
ISSN: 1359-0790

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