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Book part
Publication date: 10 August 2018

Nan Jia, Jing Shi and Yongxiang Wang

We argue that the influence of public stakeholders (the state) and private stakeholders (nonstate social or economic stakeholders) on corporate philanthropy is interdependent, in…

Abstract

We argue that the influence of public stakeholders (the state) and private stakeholders (nonstate social or economic stakeholders) on corporate philanthropy is interdependent, in that satisfying the state may increase the degree of scrutiny and pressure exerted by private stakeholders on the firm, particularly in institutional environments that place few checks and balances on the power of the state – thus creating suspicion that political patronage shelters firms’ social and moral wrongdoing. To test this theory, we examine the circumstances under which politically patronized firms engage more (or less) in corporate philanthropy. Utilizing a dataset that encompasses both publically traded and unlisted private firms in China, we find that corporate philanthropy is negatively associated with political patronage among unlisted firms but positively associated with political patronage among listed firms. These results are consistent with the predictions made based on our theoretical arguments. This chapter aims to foster further discussion regarding the interdependence of the influences exerted by different stakeholders on firms.

Details

Sustainability, Stakeholder Governance, and Corporate Social Responsibility
Type: Book
ISBN: 978-1-78756-316-2

Keywords

Article
Publication date: 20 November 2023

Albert Danso, Emmanuel Adu-Ameyaw, Agyenim Boateng and Bolaji Iyiola

Prior studies suggest that, in an industry in which several public firms operate (i.e. greater public firm presence), uncertainty about business operations within the industry is…

Abstract

Purpose

Prior studies suggest that, in an industry in which several public firms operate (i.e. greater public firm presence), uncertainty about business operations within the industry is reduced due to greater analyst coverage and quality of information disclosure. In this study, the authors examine how UK private firms respond to investment opportunities in fixed intangible assets (FIAs) in an environment characterised by greater public firm presence (PFP).

Design/methodology/approach

Using data from 61,278 (1,358) private (public) UK firms operating in ten sectors spanning from 2006 to 2016, the authors conduct this analysis by using panel econometric techniques.

Findings

The authors observe that private firms are more responsive to their FIA investment opportunities when they operate in industries with more PFP. Also, the authors find that firms in industries with better information quality use more debt and have longer debt maturity security but less internal cash flow. Overall, the findings indicate that PFP generates positive externalities for private firms by lessening industry uncertainty and enhancing more efficient FIA investment. The results are robust to endogeneity concerns.

Research limitations/implications

A key limitation of the study is that it focuses on a single country (the UK) and therefore there is a likelihood that the results found are specific to this setting but not others, particularly developing and emerging economies. Thus, future studies could explore these ideas from the viewpoint of multiple countries.

Practical implications

Overall, the study demonstrates the importance of information disclosure in driving investment decisions of firms.

Originality/value

While this paper builds on the information disclosure and corporate investment literature, it is one of the first attempts, to the best of the authors’ knowledge, to explore how private UK firms respond to investment in FIAs in an environment characterised by greater PFP.

Details

Journal of Applied Accounting Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 12 November 2018

Steve O’Callaghan, John Ashton and Lynn Hodgkinson

The purpose of this paper is to investigate two related questions. First, is earnings management behaviour in private firms related to managerial ownership and if so, what form…

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Abstract

Purpose

The purpose of this paper is to investigate two related questions. First, is earnings management behaviour in private firms related to managerial ownership and if so, what form does the relationship take. Second, is there evidence of opportunistic earnings management behaviour in private firms.

Design/methodology/approach

This study uses univariate and multivariate (regression) methodologies to examine the association between managerial ownership and earnings management in private firms. The study employs a data set of 1,223 large private UK firms.

Findings

Evidence is presented indicating opportunistic earnings management behaviour in private firms. Specifically, firms with low managerial ownership appear to engage in more earnings management when faced with poor performance. Further, when firms report income-increasing discretionary accruals, the magnitude of abnormal accruals varies non-linearly with managerial ownership.

Research limitations/implications

This study is limited by availability of data on sample firm ownership. This study uses cross-sectional data due to these limitations. Further research could investigate the relationships between earnings management and classes of shareholders other than managers in private firms.

Practical implications

Policy implications of this work suggest that non-managing shareholders in private firms face considerable agency costs, in particular where managerial ownership is very low or very high.

Originality/value

Pervasiveness of earnings management in private firms compared to public firms is well documented in the literature. There is limited extant research on the relationship between ownership structure and earnings management in private firms. The novel aspect of this study is to present findings on the association between this behaviour, managerial ownership and firm performance in private firms.

Details

Journal of Applied Accounting Research, vol. 19 no. 4
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 19 January 2022

Ying Chen and Yuanyuan Sun

This study investigates, from a resource dependence perspective, the effects of domestic private firms' political connections and economic power on their labor law compliance in…

Abstract

Purpose

This study investigates, from a resource dependence perspective, the effects of domestic private firms' political connections and economic power on their labor law compliance in China.

Design/methodology/approach

This study used data from a large-scale nationwide survey on Chinese domestic private firms, the Chinese Private Enterprise Survey collected from 2004 to 2012, to examine factors of interest that affect firms' compliance to labor laws. Hypotheses were tested using OLS regression models with robust standard errors.

Findings

The results indicate that domestic private firms' institutional political connections specified by the presence of a union or a Chinese Communist Party committee is positively related to firms' labor law compliance, and firm owners' formal political connections indicated by their membership in the People's Congress or the Chinese People's Political Consultative Conference have a somewhat negative effect. The post-hoc analysis shows that firm owners' political representation at the county and city levels is negatively related with labor law compliance, while the political representation at the national level is positively related to labor law compliance. Moreover, the economic power of a domestic private firm is related positively to its labor law compliance. Finally, although the authors did not find evidence that the 2008 Labor Contract Law increased labor contract coverage, it did increase pension coverage after 2008.

Research limitations/implications

The present study reveals a more refined relationship between domestic private firm owners’ political connections and the degree of labor law compliance. It also demonstrates that the economic power of domestic private firms has a positive effect on their labor law compliance. This implies the importance of the contribution of domestic private firms to economic and social development in China, warranting continued support of the development of the private sector in China.

Originality/value

This study adds to the sparse literature on the determinants of domestic private firms' labor law compliance in China. It also sheds light on whether political connections and the rising economic power of Chinese domestic private firms influence their compliance with labor laws.

Details

Employee Relations: The International Journal, vol. 44 no. 4
Type: Research Article
ISSN: 0142-5455

Keywords

Article
Publication date: 18 December 2019

Chun-Keung (Stan) Hoi, Jun Xiong and Hong Zou

Taking advantage of the 2008 Sichuan Great Earthquake as a natural experiment, the purpose of this paper is to examine the motives and effects of corporate donations by focusing…

Abstract

Purpose

Taking advantage of the 2008 Sichuan Great Earthquake as a natural experiment, the purpose of this paper is to examine the motives and effects of corporate donations by focusing on how firm ownership identity as the first-order governance mechanism affects the motives and effects of disaster relief donations.

Design/methodology/approach

The authors conduct regressions and market event studies, and use matching to address the confounding effects of differences in firm characteristics.

Findings

The authors hypothesize that private firms that are better governed than state-owned enterprises (SOEs) are more likely to donate for value maximization. Consistent with this, the authors find that private firms are more likely to donate to the 2008 Sichuan earthquake and donate more than SOEs. The effects of secondary governance variables in the donation determinant models (e.g. board independence and managerial ownership) are more consistent with the value maximization argument. While short-term market reaction to donation announcement is not significant for private firms, it is lower when SOEs make a large donation. Consistent with the hypothesis, the authors find that over the 24–36 months following the donation, private donors realize a higher abnormal stock return.

Research limitations/implications

The study contributes to the debate over the merits/costs of corporate donations and helps better understand how SOEs and private firms (particularly family-owned firms) differ in their governance and financial decision-making.

Practical implications

Both managers from private firms and SOEs can use the findings of this study to better guide their donation and other philanthropic decisions.

Originality/value

This study is the first to examine both the motives and effects of corporate donations by both private and SOEs taking advantage of the 2008 Sichuan, thereby significantly extending prior related studies.

Details

China Finance Review International, vol. 10 no. 2
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 6 November 2017

Gaoliang Tian, Yi Si and M.M Fonseka

In China, private equity placement (PEP) has become the most important equity refinancing method because most listed firms issue new stocks in this method. However, previous…

Abstract

Purpose

In China, private equity placement (PEP) has become the most important equity refinancing method because most listed firms issue new stocks in this method. However, previous literature has not paid much attention to the impact of political connections on PEP. In this paper, the authors aim to focus on the effect of ultimate ownership types and political connections on approval, approval time, approval results and proceeds of PEP. Besides that the authors also explore the influence of different types and levels of political connections on PEP.

Design/methodology/approach

This study investigates the impact of ultimate ownership and political connections of private firms on the approval of PEPs. The authors obtain a final sample of 1,651 private placement events of Chinese-listed firms. To test the hypothesis that the authors developed in this paper, the authors use empirical models from the existing literature about political connections and corporate finance. They establish multiple linear regressions to test Hypothesis 1 and 3 and introduce a logit model to test Hypothesis 2.

Findings

First, this study documents that state-owned firms have significant advantages over private firms in approval procedure. Second, political connections seem to help private firms obtain approval of placements from China Securities Regulatory Commission. Third, political connections through government officers are not useful for firms to obtain refinance resources, whereas the connections of being members of Chinese People’s Political Consultative Conference and People’s Congress are the two valuable types of political connections to help private firms obtain approval.

Originality/value

This paper has three main contributions to the previous literature. The first contribution is to provide an evidence for the relation between political connections and PEP approval procedures. The second contribution is to provide a comparison between government officer’s connection and social title’s connection. The third contribution of this paper is to reveal the influence of non-disclosed political connection on PEP approval. All the three contributions are important for understanding the relation between political connections and firm refinancial policy.

Details

Nankai Business Review International, vol. 8 no. 4
Type: Research Article
ISSN: 2040-8749

Keywords

Article
Publication date: 6 March 2017

Pascal Nguyen, Nahid Rahman and Ruoyun Zhao

This paper aims to evaluate the robustness of the listing effect in Australia, that is whether acquisitions of private firms create more value to the bidding firm’s shareholders…

Abstract

Purpose

This paper aims to evaluate the robustness of the listing effect in Australia, that is whether acquisitions of private firms create more value to the bidding firm’s shareholders than acquisitions of publicly listed firms.

Design/methodology/approach

The authors analyze the market reaction to the announcement of takeover bids initiated by Australian public firms on private and public targets over the period 1990-2011. The analysis controls for a wide range of bidder, deal and target country characteristics that are likely to correlate with the target’s listing status and acquirer abnormal returns. The authors also use a selection model to address the endogenous choice of the target’s listing status.

Findings

The results indicate that bidders experience significantly higher abnormal returns of about 1.7 per cent in the 11-day event window when the target is a private firm. The authors show that this result is broad-based and persistent. It does not appear to depend on whether the target is small or large; whether it is related or unrelated to the bidder’s industry; whether it is in the resources sector; and whether the transaction is domestic or cross-border. They find some evidence that bidder returns might be stronger for larger acquisitions, for unrelated targets, and in poor market conditions such as in the wake of the recent global financial crisis.

Research limitations/implications

The research would benefit from the inclusion of the bidding firm’s ownership and governance characteristics.

Practical implications

The results support the view that market frictions contribute to make private firms attractive targets.

Originality/value

The analysis confirms the pervasiveness of the listing effect in a market characterized by a lesser degree of competition, higher search costs and the significance of the natural resources sector.

Details

Studies in Economics and Finance, vol. 34 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

Open Access
Article
Publication date: 17 August 2021

Esteban Lafuente and Miguel Á. García-Cestona

This paper investigates how past performance changes, prior CEO replacements and changes in the chairperson impact CEO turnover in public and large private businesses.

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Abstract

Purpose

This paper investigates how past performance changes, prior CEO replacements and changes in the chairperson impact CEO turnover in public and large private businesses.

Design/methodology/approach

We analyze 1,679 CEO replacements documented in a sample of 1,493 Spanish public and private firms during 1998–2004 by computing dynamic binary choice models that control for endogeneity in CEO turnovers.

Findings

The results reveal that different performance horizons (short- and long-term) explain the dissimilar rate of CEO turnover between public and private firms. Private firms exercise monitoring patience and path dependency characterizes the evaluation of CEOs, while public companies' short-termism leads to higher CEO turnover rates as a reaction to poor short-term economic results, and alternative controls—ownership and changes in the chairperson—improve the monitoring of management.

Originality/value

Our results show the importance of controlling for path dependency to examine more accurately top executives' performance. The findings confirm that exposure to market controls affects the functioning of internal controls in evaluating CEOs and shows a short-term performance horizon that could be behind the recent moves of public firms going private or restraining shareholders' power.

Details

Journal of Economics, Finance and Administrative Science, vol. 26 no. 52
Type: Research Article
ISSN: 2218-0648

Keywords

Article
Publication date: 18 November 2013

Wang Zhengwei

The purpose of this paper is to examine whether corporate ownership affects corporate capital structure. This study also seeks to find out whether there is difference in dynamics…

1579

Abstract

Purpose

The purpose of this paper is to examine whether corporate ownership affects corporate capital structure. This study also seeks to find out whether there is difference in dynamics of the capital structure between these two groups of firms.

Design/methodology/approach

Based on panel data of China's listed firms from 1998 to 2007, this paper employs a static empirical model to validate the difference in capital structure between these two groups of firms, and then, a dynamic empirical model is used to explore the dynamic adjustment of the capital structure.

Findings

The empirical results show that there is structural difference in static capital structure between state-owned and private listed firms. Further study results tell us that the adjustment to an optimal capital structure is to be faster for the private firm than for the state-owned firm.

Practical implications

The findings suggest that compared with state-owned firms, private firms face higher financial friction in financing activities, but have more incentive to adjust toward optimal capital structure to maximize the shareholders' benefit. This study offers insights to corporate managers interested in privatization, when a state-owned firm is privatized, that firm becomes subject to the disciplining forces of the market and more active to pursue maximum market value of the firm, thus the adjustment to an optimal capital structure to be faster for private firm than for state-owned firm.

Originality/value

This paper for the first time looks at the influence of ownership on capital structure, from both static and dynamic perspective. And this study is helpful for regulators, and corporate managers to understand the corporate financial management behavior.

Details

Chinese Management Studies, vol. 7 no. 4
Type: Research Article
ISSN: 1750-614X

Keywords

Article
Publication date: 15 November 2021

Ronny Prabowo, Usil Sis Sucahyo, Theresia Woro Damayanti and Supramono Supramono

The research aims to investigate the moderating role of secrecy culture on the effect of tax enforcement on the likelihood that private firms hire external auditors.

Abstract

Purpose

The research aims to investigate the moderating role of secrecy culture on the effect of tax enforcement on the likelihood that private firms hire external auditors.

Design/methodology/approach

The study generates more than 70,000 observations from 83 country-years from the World Bank Enterprise Survey 2018 dataset. Because the study focuses on private firms in emerging countries, data on publicly listed firms and firms from OECD (Organisation for Economic Co-operation and Development) countries are deleted. The secrecy culture data are generated from Hofstede's website. The data are then analyzed with logit analyses because the dependent variable is binary.

Findings

The results demonstrate that tax enforcement increases the likelihood that private firms hire external auditors. Further, secrecy culture weakens the relationship between tax enforcement and audit demand.

Practical implications

Governments in emerging countries need to encourage private firms to hire external auditors by intensifying tax enforcement because private firms often do not appreciate the importance of high-quality financial statements. However, secretive national culture may reduce tax enforcement's effectiveness in motivating private firms to hire external auditors. Hence, governments of highly secretive countries need to address this issue and find alternative ways to promote audited financial statements.

Originality/value

Audit demand of private firms in emerging countries is relatively understudied, especially concerning tax enforcement. Furthermore, the research also focuses on the moderating role of national culture (secrecy) in explaining the relationship between tax enforcement and audit demand.

Details

Journal of Accounting in Emerging Economies, vol. 12 no. 3
Type: Research Article
ISSN: 2042-1168

Keywords

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