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Article
Publication date: 8 April 2021

Lamia Jamel, Hanadi Eid Albogami, Mazen Abduljalil Abdulaal and Nuha Ahmed Aljohani

The purpose of this paper is to examine the impact of agency conflicts between managers and shareholders on corporate risk management and financial performance of Saudi firms…

Abstract

Purpose

The purpose of this paper is to examine the impact of agency conflicts between managers and shareholders on corporate risk management and financial performance of Saudi firms listed in the Saudi Stock Exchange Tadawul.

Design/methodology/approach

To investigate the effect of agency conflicts between managers and shareholders on corporate risk management and financial performance, we use a sample of 180 Saudi firms listed in the Saudi Stock Exchange Tadawul during the period from 2009 to 2018. Econometrically, we employ Vector Autoregressive (VAR) and General Linear Model (GLM) techniques as an appropriate methodology.

Findings

Our findings show that the risk level of the last year increase the corporate risk management and the performance of Saudi firm. We remark that the separation amongst control and ownership generates agency conflicts amongst managers and shareholders which can affect their behavior in decision-making and performance of the Saudi firms. Thus, the conflicts of interest arise from the differences among the work horizon, the risk assumed, the performance of enterprises, and the level of remuneration desired by the managers and shareholders in the case of Saudi firms.

Originality/value

The main contributions of our paper prove that the deepen the study of agency costs linked to a shareholding structure through the analysis of monitoring, obligation, and opportunity costs in the Saudi firms.

Details

Journal of Investment Compliance, vol. 22 no. 1
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 5 October 2018

Vinita Ramaswamy

Director interlocks, with their extended resources and shared experiences, have the potential power to go beyond the basic role of providing advice and monitoring the activities…

Abstract

Purpose

Director interlocks, with their extended resources and shared experiences, have the potential power to go beyond the basic role of providing advice and monitoring the activities of an organization. Interlocked directors can have a cross-cultural role in manipulating corporate choices and strategies in several areas, including capital structure, based on learned behavior in their internal company. Shareholders and creditors are the two main capital providers for a company. However, their risk return horizons are very different, and policies that benefit one group may not be optimal to the other. Interlocks can act as carriers of sub-par practices that affect the behavior of several organizations. Such transactional and relational activities may increase short-term value for equity shareholders, but increase the risk for the creditors. The purpose of this paper is to examine cross-cultural effects of interlocks on corporate strategies that affect this essential agency relationship.

Design/methodology/approach

This paper surveys the extant literature on board interlocks, board practices, equity valuation and credit risk to develop a link between such interlocks and creditor protection. Based on a brief survey of the central concepts of governance and the role of directors, this paper then provides various propositions on the role of interlocking directorships and their effect on the shareholder–creditor agency problem.

Findings

Director interlocks, through their linked common practices, have the potential to increase or worsen shareholder–creditor conflicts by magnifying strategic practices like short-termism, earnings management or through its effects on chief executive officer compensation. Such cross-cultural effects persist across ownership structures and cultural differences in governance.

Research limitations/implications

The paper is not an empirical study of the conflict. This paper uses a literature review to arrive at propositions that may impact shareholder–creditor conflicts.

Practical implications

Several studies have shown cronyism and the dense corporate network has been a large factor in the financial crisis that affected both shareholders and creditors. As the influence of creditors grows with the current availability, and therefore increase in debt levels, this conflict can be magnified through homophily inherent in interlocks. For an organization to be successful in its role of protecting all stakeholders, especially the two major providers of equity capital, factors that cause conflicts must be taken into account while developing the tenets of governance policies and, on a regular basis, during the strategic planning process within the organization. Regulations affecting interlocks, including governance policies, must therefore take into account such influences.

Social implications

Board interlocks act as channels of information between companies, creating a social network where processes and polices are shared and implemented as defined by the concept of homophily. Such management actions reduce both the quality of information available to creditors and their monitoring capabilities. This juxtaposition of shareholder and creditor interest can, therefore, be worsened by director interlocks.

Originality/value

Prior literature has not specifically linked director interlocks and their mutual impact on the culture and strategy of linked corporations to the shareholder–creditor conflict.

Details

Management Decision, vol. 57 no. 10
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 1 January 2006

Maria Aluchna

The paper refers to the development process of corporate governance and shareholder activism in transition economies. It identifies the existing corporate governance structure as…

Abstract

The paper refers to the development process of corporate governance and shareholder activism in transition economies. It identifies the existing corporate governance structure as well as main problems analysing conflicts in Polish corporations portraying the shareholders' fight for control over the corporations. The analysis of several selected shareholder conflicts, referring particularly to the fights of dominant and minority shareholders allows to point out main shortcomings of corporate governance in transition economies. The lack of standards for corporate behaviour, the poor legal system characterized by weak enforcement of investor protection rights (law in action), the practically non‐existent shareholder litigation as well as the development stage of the shareholder activism. Finally, the paper attempts to trace the development of shareholder protection and ethical behaviour presenting the process of setting high standards for the corporate activity with the reference to transparency, the treatment of minority shareholders and the managerial accountability as well as the monitoring role of authorities carried out by Polish Securities and Exchange Commission and non‐governmental associations or business initiatives (Polish Institutes of Directors, Polish Institute for Investor Relations).

Details

Social Responsibility Journal, vol. 2 no. 1
Type: Research Article
ISSN: 1747-1117

Article
Publication date: 16 October 2017

Xiaoxiang Zhang, Jo-Ting Wei and Hsin-Hung Wu

The purpose of this paper is to examine how family firms affect analyst forecast dispersion, accuracy and optimism and how earnings smoothness as the moderating factor, affects…

Abstract

Purpose

The purpose of this paper is to examine how family firms affect analyst forecast dispersion, accuracy and optimism and how earnings smoothness as the moderating factor, affects these relationships in an emerging market context.

Design/methodology/approach

This paper uses the population sample of firms listed on the Taiwan Stock Exchange from 2009 to 2010 as the research sample, which includes 963 firm-year observations.

Findings

The findings show that analysts following family firms are more likely to have more dispersed, less accurate and more optimism biased forecasts than those following nonfamily firms. Earning smoothness is mainly used by nonfamily firms as a signaling strategy to improve analyst forecast quality. In contrast, earnings smoothness is mainly used by families as a garbling strategy, stimulating forecast optimism. Only earnings smoothness in family firms with a high level of family ownership concentration is likely to be signaling-oriented to improve analyst forecast accuracy and mitigate analyst optimism biases.

Originality/value

Emerging markets are not only featured by prevailing principal-principal conflicts but also have multiple levels of agency conflicts among large shareholders, minority shareholders and professionally hired managers. This research reveals the multiple governance roles of family owners in affecting analyst forecast quality, including their entrenchment role in extracting private benefits of control through opaque environments and market discipline distortion role in aligning interests between managers and families without prioritizing meeting or beating analyst forecasts, both at the cost of minority shareholders. This research further disentangles the intertwined signaling oriented and garbiling oriented incentives associated with earnings smoothness under family governance.

Details

Management Decision, vol. 55 no. 9
Type: Research Article
ISSN: 0025-1747

Keywords

Open Access
Book part
Publication date: 14 December 2023

Lorenz Holler

Family constitutions are relatively new to the law of family companies, although there might have been forerunners in the history of entrepreneur families. The practical…

Abstract

Family constitutions are relatively new to the law of family companies, although there might have been forerunners in the history of entrepreneur families. The practical importance and the proliferation of family constitutions in German family companies are increasing, along with the discussion of family constitutions in legal literature. This new instrument of family governance is not law driven but business driven, it has been designed by business advisors. Its analysis and classification are still at the very beginning in academic research and practice. Even though family constitutions are generally deemed to be without any legal effect and not legally binding, from a legal point of view, this assumption is at least highly questionable.

Article
Publication date: 29 January 2020

Amjad Iqbal, Xianzhi Zhang, Muhammad Zubair Tauni and Khalil Jebran

The purpose of this paper is to examine the interaction between competition and corporate payout policy and more specifically to answer the question that whether competition…

Abstract

Purpose

The purpose of this paper is to examine the interaction between competition and corporate payout policy and more specifically to answer the question that whether competition mitigates the principal–principal agency conflicts and influences firms to distribute dividends to shareholders in Chinese corporations.

Design/methodology/approach

This research models measures of competition with scaled measures of dividends and analyzes a sample of 16,730 firm-year observations from Chinese-listed manufacturing firms for the period spanning 2003 to 2016. Further, this research uses the Tobit model (a censored regression) to empirically test the proposed hypotheses.

Findings

This research finds that intense competition not only mitigates agency problems and forces firms to disgorge cash but also increases a firm’s likelihood to pay dividends and weakens the negative association between agency conflicts and dividends.

Practical implications

The results show an important policy implication for the industry. As the principal–principal agency conflict restrains the dividends, the regulatory authorities could encourage a competitive environment and a more diverse ownership structure to induce a higher dividend rate and protect the minority shareholders. In addition, this study also has implications for other emerging markets characterized by concentrated ownership and principal–principal agency problems.

Originality/value

This study adds to the literature related to the disciplinary role of competition and identifies competition as a significant determinant of corporate payout policy. Furthermore, this research extends earlier research on corporate payout decisions that besides firm-level corporate governance and country-level legal system, industry-level competition also influences corporate payout decisions, significantly.

Details

Journal of Asia Business Studies, vol. 14 no. 3
Type: Research Article
ISSN: 1558-7894

Keywords

Case study
Publication date: 20 June 2019

Olga Kandinskaia, Alla Dementieva and Olga Khotyasheva

In any company, there are conflicts of interest and different opinions on the business strategy. However, a well-established system of corporate governance allows us to minimise…

Abstract

Theoretical basis

In any company, there are conflicts of interest and different opinions on the business strategy. However, a well-established system of corporate governance allows us to minimise those conflicts and enables most disagreements to be solved in a civilised way. The case provides an opportunity to examine the specifics of corporate conflicts in Russia and improves decision-making skills with a view to increase business efficiency.

Research methodology

This descriptive case was written using the secondary sources from the Russian and foreign media, as well as other publicly available information about Norilsk Nickel. No information was disguised in any way.

Case overview/synopsis

This case study is a story of a dramatic corporate conflict at the Russian company Norilsk Nickel, one of the world’s leading producers of precious metals. In 2008–2012, the company went through a painful conflict between the majority shareholders (oligarchs Mr Potanin and Mr Deripaska) for the control over the business. The case of Norilsk Nickel was indeed a crucial case for Russia which helped define the “rules of the game”. In 2019, however, the situation looked prone to the escalation of the old conflict. The fact that from 2018 both oligarchs were under the US sanctions added further tensions.

Complexity academic level

This case is most appropriate for courses in corporate governance, business ethics and doing business in Russia at the undergraduate or graduate level. There is a sufficient number of extenuating circumstances to make for a good discussion of strategic and tactical factors in this type of a corporate governance decision analysis. The complexity of the case is a perfect illustration of the Russian business environment: it is never easy in the Russian business environment to figure out what is important and what is not.

Details

The CASE Journal, vol. 15 no. 3
Type: Case Study
ISSN: 1544-9106

Keywords

Article
Publication date: 2 March 2015

Mejbel Al-Saidi and Bader Al-Shammari

This paper aims to investigate the relationship between ownership structure (ownership concentration and ownership composition) and firm performance in Kuwaiti non-financial…

Abstract

Purpose

This paper aims to investigate the relationship between ownership structure (ownership concentration and ownership composition) and firm performance in Kuwaiti non-financial firms. To this end, it examines the relationship between firm performance and ownership concentration to determine whether the impact of this relationship is conditional on the nature of the large shareholders.

Design/methodology/approach

First, the relationship between ownership concentration and firm performance was tested using ordinary least squares regressions on 618 observations (103 listed firms) from 2005 to 2010; next, the ownership compositions were classified as institutional, government and individuals (families) and their impact on firm performance examined.

Findings

The overall concentration ownership by large shareholders showed no impact on firm performance. However, when the type of shareholders was introduced, only the government and individuals (families) ownership categories influenced firm performance. Therefore, certain types of shareholders are better at monitoring, and not all concentration by large shareholders is beneficial to Kuwaiti firms.

Research limitations/implications

This study examined only one important aspect of the corporate governance mechanisms, namely, ownership concentration. Thus, further study may include other mechanisms such as board variables, role of debt and shareholders rights in examining the firm performance. This study is limited to the Kuwaiti environment, and thus, next step can be very useful in case of comparing ownership concentration in the Gulf Cooperation Council (Kuwait, Bahrain, Qatar, Oman, United Arab Emirates and Saudi Arabia) or across different Arab countries.

Practical implications

The results of this study have important implications for the regulators in Kuwait in their efforts to increase the efficiency of the rapidly developing capital markets and in protecting investors and keeping confidence in the economy. They may mandate a corporate governance code to protect minority shareholders. Investors may use the findings to understand Kuwaiti companies. Such findings may assist them to diversify their investment portfolios.

Originality/value

This paper extends literature review by investigating the role of large shareholders in the context of a developing country that is characterized by high level of ownership concentration and weak legal protection for investors as well as the absence of code that organized the corporate governance practices.

Details

International Journal of Commerce and Management, vol. 25 no. 1
Type: Research Article
ISSN: 1056-9219

Keywords

Article
Publication date: 12 February 2018

Chrispas Nyombi

This paper aims to explore the reasons why the USA makes a good comparator for the UK when it comes to corporate governance.

Abstract

Purpose

This paper aims to explore the reasons why the USA makes a good comparator for the UK when it comes to corporate governance.

Design/methodology/approach

The paper is largely theoretical.

Findings

The paper finds that the USA has become a laboratory for ideas in corporate governance and the UK can learn a lot in areas such as takeovers and shareholders’ rights.

Originality/value

The paper explains the reasons why the UK and the USA have dominated research literature in corporate governance. The findings and arguments raised throughout the paper are very original.

Details

International Journal of Law and Management, vol. 60 no. 1
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 19 September 2018

Vicente Lima Crisóstomo and Isac de Freitas Brandão

High ownership concentration makes controlling blockholders powerful enough to use private benefits of control and able to shape the corporate governance system to favor their own…

Abstract

Purpose

High ownership concentration makes controlling blockholders powerful enough to use private benefits of control and able to shape the corporate governance system to favor their own interests. This paper aims to examine the effect of the nature of the ultimate firm owner on the quality of corporate governance in Brazil.

Design/methodology/approach

Econometric models are estimated to assess whether the nature of the ultimate controlling shareholder affects the quality of the corporate governance system. Models are estimated using panel data methodology with coefficients estimated by the generalized method of moments system estimator.

Findings

The results show that the absence of a controlling shareholder has a positive effect on corporate governance, whereas the presence of a controlling blockholder, or a shareholder agreement among a few large shareholders, has a negative effect. This adverse effect holds when the controlling blockholder is a family or another firm. The findings are in line with the expropriation effect given that weaker corporate governance system facilitates controlling shareholders’ ability to extract private benefits of control. The findings also give support to the substitution effect as powerful blockholders take on the management monitoring function by weakening the board.

Originality value

Following important previous literature, the study investigates the effect of the nature of large controlling shareholders on the adoption of good corporate governance practices. The work provides additional evidence on the effect of the nature of large controlling shareholders on the quality of the corporate governance system in Brazil, taking into account the main kinds of controlling blockholders present in that market. The findings give support to both the expropriation and substitution hypotheses highlighting the presence of the principal-principal agency model in an important emerging market, Brazil.

Details

Corporate Governance: The International Journal of Business in Society, vol. 19 no. 1
Type: Research Article
ISSN: 1472-0701

Keywords

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