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Article
Publication date: 9 March 2023

Swechha Chada and Gopal Varadharajan

This paper aims to examine the relationship between earnings quality and corporate cash holdings in an emerging economy. Existing literature posits that earnings quality is a…

Abstract

Purpose

This paper aims to examine the relationship between earnings quality and corporate cash holdings in an emerging economy. Existing literature posits that earnings quality is a result of information asymmetry and firms with lower earnings quality increases cash holdings, to shield the firm from future uncertainties. In this paper, the authors propose a ‘private benefits hypothesis’, which suggests that lower earnings quality is an indicator of opportunism and expropriation of resources in the firm, through tunneling or excessive executive compensations. As a result, firms with lower earnings quality increase cash holdings in their control, to increase their private benefits and to avoid the scrutiny of the external stakeholders. The authors further examine the monitoring role played by institutional investors on cash holdings, with varying degrees of earnings quality.

Design/methodology/approach

This study uses an unbalanced panel data sourced from Prowessdx, from 2000 to 2019. The analysis employs 20,231 firm-year observations from 2,421 firms. Earnings quality is calculated following Dechow and Dichev (2002).

Findings

Empirical analysis confirms that the firms with higher earnings quality reduce cash. Further, institutional investors reduce the cash holdings in firms with higher earnings quality. Institutional investors effectively reduce the cash only in firms with at least 10% of equity shareholding. The results are robust to alternative measures of earnings quality and endogeneity concerns.

Originality/value

This study diverges from the information asymmetry hypothesis in the existing literature on earnings quality and cash holdings and highlights the underlying private benefits hypothesis, that will impact cash holdings. Next, the 10% institutional shareholding is important in the Indian context as it represents the minimum threshold at which block holders can request extraordinary general meetings (Section 100 of the Companies Act 2013) or the involvement of the National Company Law Tribunal (NCLT) (Section 213 of the Companies Act 2013). This study highlights that unlike in Anglo-Saxon economies, institutional investors or other minority shareholders are empowered by the Companies Act 2013 to play a vital role in corporate governance with a mere 10% equity.

Details

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

Keywords

Article
Publication date: 19 September 2019

Adam Y.C. Lei, Huihua Li and Jin Yu

The purpose of this paper is to examine the dividend payments and share repurchases of dual-class firms that have both their superior voting shares and inferior voting shares…

Abstract

Purpose

The purpose of this paper is to examine the dividend payments and share repurchases of dual-class firms that have both their superior voting shares and inferior voting shares publicly traded.

Design/methodology/approach

This paper uses matched dual-class and single-class samples from 1994 to 2015 and logit models to evaluate the likelihoods of dividend payment and share repurchase between dual-class firms and single-class firms.

Findings

The results show that dual-class firms are more likely than the matched sample of single-class firms to pay dividends in both share classes. Dual-class firms, however, are more likely to repurchase their superior shares than single-class firms and their inferior shares.

Research limitations/implications

The results suggest that dual-class firms do not use corporate payouts to either mitigate agency problems or maintain the private benefits of control. Instead, dual-class firms use dividend payments to mitigate agency problems while using repurchases of superior shares to maintain the private benefits of control, which supports the agency payout hypothesis.

Practical implications

This paper highlights the differences between dividend payments and share repurchases as forms of corporate payouts and suggests that firms may choose a particular form for a particular purpose.

Originality/value

This paper provides the first piece of empirical evidence on the corporate payouts of dual-class firms separating their superior voting shares and inferior voting shares.

Details

Managerial Finance, vol. 45 no. 12
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 March 2021

Chun-Teck Lye and Chee-Wooi Hooy

This study aims to examine the effects of investor protection (PROT), internal and external corporate governance (CG) on private information-based trading (PIBT).

Abstract

Purpose

This study aims to examine the effects of investor protection (PROT), internal and external corporate governance (CG) on private information-based trading (PIBT).

Design/methodology/approach

This study uses a sample of 3,438 firms from 42 countries for the period 2002–2015 to examine the effects of the broad and specific measures of PROT, internal CG and external CG (product market competition and block ownership [BOWN]) on a more accurate measure of PIBT using regression analysis.

Findings

The results show that PROT and BOWN are effective in reducing PIBT. However, the specific measure of PROT (strength of PROT) is not significant in emerging markets and civil law countries. The internal CG is also significant but has a positive effect on PIBT.

Research limitations/implications

The results suggest that PROT law matters in the efforts to prevent PIBT. Policymakers and securities market regulators, particularly in emerging markets and civil law countries, should focus more on refining existing securities laws and enacting detailed securities rules that explicitly prevent specific market manipulation and PIBT.

Originality/value

This study provides evidence for the importance of specific and detailed securities rules in different market and legal environments. Furthermore, this study uses the segregated private information-based speculative trading component to accurately measure the PIBT.

Details

Studies in Economics and Finance, vol. 38 no. 4
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 13 November 2009

Haiyan Jiang and Ahsan Habib

The purpose of this paper is to investigate the impact of different categories of ownership concentration on corporate voluntary disclosure practices in New Zealand.

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Abstract

Purpose

The purpose of this paper is to investigate the impact of different categories of ownership concentration on corporate voluntary disclosure practices in New Zealand.

Design/methodology/approach

The study applies panel data regression analysis to a sample of New Zealand listed companies from 2001 to 2005. Two‐stage least squares analysis (2SLS) is conducted. Ownership concentration is categorised into four mutually exclusive ownership structures.

Findings

The paper finds that firm‐year observations characterised by financial institution‐controlled ownership structure tends to make significantly fewer (more) disclosures at high (low) concentration levels supporting expropriation. In contrast, firm‐year observations in the high (low) concentration group with government‐ and management‐controlled ownership structures exhibit considerably higher (lower) voluntary disclosure scores, suggesting a positive monitoring effect at high ownership concentration level.

Research limitations/implications

The results provide evidence for the proposition that the efficiency of large block holders' monitoring varies with the level of ownership concentration.

Practical implications

To promote transparency in capital markets, regulators can encourage or discourage certain types of large shareholding, while monitoring the level of ownership concentration by means of regulation. Investors, especially less sophisticated retail investors, will benefit from the findings that different ownership groups affect disclosure policies differently.

Originality/value

The findings strengthen the importance of differentiating ownership structures into various classes to infer the real impact of differential controlling properties on managerial disclosure decisions. Furthermore, the results reveal that the relationship between ownership concentration and voluntary disclosure practices has a non‐linear pattern.

Details

Accounting Research Journal, vol. 22 no. 3
Type: Research Article
ISSN: 1030-9616

Keywords

Article
Publication date: 9 January 2020

Nan Xu, Hanyi Tian and Jing Cai

The purpose of this study is to investigate the impact of non-founder CEO succession on firms’ research and development (R&D) decision, and further explore its mechanism and…

Abstract

Purpose

The purpose of this study is to investigate the impact of non-founder CEO succession on firms’ research and development (R&D) decision, and further explore its mechanism and economic consequences.

Design/methodology/approach

Using founders’ personal-level information of entrepreneurial firms in the Chinese growth enterprise market from 2009 to 2015, the authors empirically investigate whether firms can be motivated to launch more R&D activities as the result of switching to non-founder CEOs. The author’s further test the impact of non-founder CEOs on R&D output to distinguish their motivation. Moreover, the authors use stepwise regression to explore the mechanism and possible channels.

Findings

The authors find that R&D investment significantly increases in firms with non-founder CEOs and the R&D output that comes in the form of patent exhibits an upward trending in numbers, too, ruling out non-founder CEOs’ incentive to chase private benefits. Specifically, the authors find that non-founder CEOs can promote R&D investment through their more professional human capital and better internal control. The authors also show mitigating effects under different circumstances on the relationship between non-founder CEOs and R&D investment.

Practical implications

This study helps the authors to understand the impact of non-founder CEO succession on R&D investment in emerging markets. It also indicates that human capital of non-founder CEOs is critical in driving firms’ innovation, proposing policy suggestions to improve formal intermediary labor market of professional CEOs.

Originality/value

This study provides elaborate theoretical analysis and empirical tests on the mechanism and economic consequences of (non-)founders’ impact on R&D activities.

Details

Nankai Business Review International, vol. 11 no. 2
Type: Research Article
ISSN: 2040-8749

Keywords

Article
Publication date: 16 October 2009

Teresa M. Pergola and Daniel A. Verreault

The purpose of the paper is to synthesize and evaluate the stream of research that links large shareholders to the production of shared corporate benefits.

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Abstract

Purpose

The purpose of the paper is to synthesize and evaluate the stream of research that links large shareholders to the production of shared corporate benefits.

Design/methodology/approach

The methodology is to review the literature with an emphasis on the development of findings.

Findings

The presence of large shareholders is positive only if their incentives are aligned with other owners and they have the power to exert influence. The presence of large shareholders, even those whose interests are aligned with owners, does not always result in stronger governance structures.

Research limitations/implications

The research is limited by the existing stream of literature and the completeness of our search process.

Practical implications

A synthesis and evaluative summary of the research is presented that may be used by researchers, executives, and board members.

Originality/value

From a research viewpoint, effective research designs should incorporate both incentive and power when assessing the monitoring role of large shareholders to aid in the validity and comparability of research results. From a practice viewpoint, managers and board members may use our summary figure to evaluate power relationships and likely reactions to strategic and tactical decisions in their firm's governance structure.

Details

Corporate Governance: The international journal of business in society, vol. 9 no. 5
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 19 February 2024

Ramzi Benkraiem, Faten Lakhal and Afef Slama

This study provides new insights into the relationship between the heterogeneity of institutional investors (IIs) and corporate tax avoidance (CTA). It also investigates whether…

Abstract

Purpose

This study provides new insights into the relationship between the heterogeneity of institutional investors (IIs) and corporate tax avoidance (CTA). It also investigates whether family ownership moderates this relationship.

Design/methodology/approach

Based on a sample of 200 French-listed firms from 2008 to 2017, we use the generalized method of moment (GMM) estimator proposed by Arellano and Bover (1995) and developed by Blundell and Bond (1998) to address endogeneity and omitted variable concerns.

Findings

The results show that passive IIs are associated with an increase in the level of tax avoidance. However, active ones significantly decrease the levels of tax avoidance practices. Moreover, we show that institutional activism is not sufficient to control managerial actions, particularly in the context of controlled family businesses. The results suggest that families may expropriate the rights of minority shareholders through a controlling coalition with passive IIs.

Research limitations/implications

This study has several practical implications. First, the results are useful for policymakers who should constrain passive IIs to provide only one service (asset management). Second, this study may sensitize family owners to the need to cooperate with active IIs that are effective in monitoring the firm. In particular, families should be willing to sacrifice some of their socioemotional wealth to promote a balanced ownership structure, which is important for responsible and effective corporate governance.

Originality/value

This paper extends previous research by investigating the heterogeneity of IIs in terms of horizon, ownership and control. In addition, this paper sheds a new light on how family firms behave regarding tax avoidance practices in the presence of active and passive IIs.

Details

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

Keywords

Article
Publication date: 18 August 2017

Safa Gaaya, Nadia Lakhal and Faten Lakhal

The purpose of this paper is to shed light on the effect of family ownership on corporate tax avoidance. It also investigates whether audit quality affects tax avoidance practices…

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Abstract

Purpose

The purpose of this paper is to shed light on the effect of family ownership on corporate tax avoidance. It also investigates whether audit quality affects tax avoidance practices by family firms.

Design/methodology/approach

Based on a sample of 55 Tunisian listed companies from 2008 to 2013, the authors use GLS regression models estimated with robust standard errors, clustered at the firm level.

Findings

The results show that family ownership is positively associated with corporate tax avoidance practices, suggesting that families expropriate minority interests by extracting rents from tax-saving positions. These practices are less prominent after the 2011 Tunisian revolution, suggesting that the pressure from governments and non-governmental organizations against corruption and unethical behavior has increased after the revolution. However, the findings show that audit quality curbs the incentives of family firms to engage in aggressive tax positions, supporting the moderating effect of audit quality on the relation between family ownership and tax avoidance.

Research limitations/implications

These findings suggest that Tunisian family firms are likely to expropriate minority interests by extracting rents from tax-saving positions. However, in presence of high-quality audit, the relation turns negative, suggesting that external audit quality is an efficient corporate governance device that is likely to monitor family corporate decisions.

Originality/value

This paper extends previous research by investigating the moderating effect of external audit quality on the relation between tax avoidance and family ownership. It also examines tax avoidance by family firms in a unique setting: Tunisia, a transitioning economy subsequently to the 2011 revolution, where investors’ rights are weakly protected and the financial market is not well-developed as in more developed countries.

Details

Managerial Auditing Journal, vol. 32 no. 7
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 16 May 2023

Isabel Acero and Nuria Alcalde

This study investigates whether the proportion of proprietary directors (blockholders or their representatives) on the board's remuneration committee influences vertical pay…

Abstract

Purpose

This study investigates whether the proportion of proprietary directors (blockholders or their representatives) on the board's remuneration committee influences vertical pay inequality in Spanish listed companies and whether this relationship can be conditioned by the concentration of ownership.

Design/methodology/approach

The sample contains information on the individual compensation of 1048 directors of 57 Spanish listed firms during the period 2013–2018 making up an unbalanced panel with 3565 observations. Panel data regressions are used to study how the presence of proprietary directors on the remuneration committee influences the remuneration of directors, focusing not on their absolute remuneration levels, but rather on their relationship to the average remuneration of the organization's employees (as a measure of vertical pay inequality within the company). The authors also investigate whether this relationship is conditioned by firm ownership concentration.

Findings

The results indicate that the presence of proprietary directors on the remuneration committee acts as a mechanism to reduce vertical pay inequality, even in the context of high ownership concentration.

Originality/value

Unlike the majority of previous research dedicated to the independence of the remuneration committee, this study focuses on the role played by proprietary directors. The results help elucidate the importance of proprietary directors to properly monitor and restrain directors' compensation in contexts of high ownership concentration.

Article
Publication date: 9 February 2015

Otuo Serebour Agyemang, Emmanuel Aboagye and Joyce Frimpong

– The purpose of this paper is to examine the rights of shareholders, particularly those of minority shareholders in the management of firms in Ghana.

Abstract

Purpose

The purpose of this paper is to examine the rights of shareholders, particularly those of minority shareholders in the management of firms in Ghana.

Design/methodology/approach

As a result of the largely unexplored nature of this issue in Ghana, a qualitative analysis was conducted to offer a painstaking understanding needed. The case study design is in particular relevant for exploring such phenomenon, as it evolves through the experiences of several key players.

Findings

Data indicate that minority shareholders’ influence is, in most cases, nil in every aspect of their firms. Whilst majority shareholders have an absolute right to appoint or influence the appointment of top officials of the firms, minority shareholders’ role in the selection is limited. In addition, in regards to control of corporate decision-making processes, unlike the majority shareholders, the minority shareholders do not have any influence on them. Further, in terms of relevant information, whilst the majority shareholders have absolute access to them anytime they desire, the minority shareholders only rely on annual general meetings to get hold of them, thus limiting their access to corporate information. The revelations unambiguously grant the majority shareholders of the firms absolute control rights whilst undermining the rights of the minority shareholders. This paper was concluded by itemizing the implications of our findings for management, regulators and governments.

Originality/value

It is believed that this is among the handful of studies that have been conducted using developing or emergent economy data to empirically analyse how minority shareholders wield their rights in emergent economies and to add to the mounting pool of scattered cross-country evidence.

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