Large Shareholders and Firm Value: An International Analysis

The Value Impact of Stock Liquidity: An International Evidence

Avoiding Distortion in Corporate Valuation Litigation: An Application of Discounted Cash Flow

Agency Conflicts and Audit Fees: An International Study

Manuscript Type: Empirical Research Question/Issue: Prior evidence suggests that investor protection enhances corporate valuation. Focusing on a key investor protection measure, namely, self-dealing regulations, this study examines whether and to what extent the private and public control components of that measure affect firm value. Private control of self-dealing regulations emphasize disclosure and shareholder approval mechanisms, while public control of self-dealing regulations imply enforcement through prison terms, fines, etc. Our analysis takes into account potential agency problems resulting from an ownership wedge, i.e., situations in which cash flow rights are not consistent with control rights. Such situations are quite common in many countries outside of the United States. Research Findings/Results: Based on 4,634 firms from 22 countries, our empirical evidence indicates that private control of self-dealing regulations enhances firm value, while public control regulations lower firm value. In addition, a high ownership wedge, which proxies for agency problems between controlling shareholders and minority investors, dampens the positive association between private control of self-dealing regulations and corporate valuation. However, ownership wedge has no impact on the negative association between public control of self-dealing regulations and corporate valuation. Theoretical Implications: This study represents a refinement and extension of prior work on the value implication from investor protection regulations. It seeks to better define the implications of investor protection regulations by focusing on some of its key components, thus leading to a better understanding of the relations between investor protection regulations, ownership, and firm value. Moreover, the study contributes to the current debate about the importance of country-level institutions (versus firm-level governance as proxied by ownership wedge) in determining firm outcomes such as value. Practitioner Implications: The paper's empirical findings may help policy markers better understand how investors react to regulations about private and public control of self-dealing, thus enhancing their capability to enact more effective regulations.

The Two Sides of Business Groups: Implications for Disclosure Practices

Does strengthening large shareholders’ cash flow rights reduce their expropriation motivation? Evidence from China’s dividend tax reforms

Investor protection and convertible debt design

Large Investors' Portfolio Composition and Firm Value

Cross Listing, Management Earnings Forecasts, and Firm Values

Multiple large shareholders and firm value

The main objective of the study is to assess the impact of political connections and board characteristics on firm value based on a sample of 61 non-financial companies listed on the Egyptian stock exchange during the period from 2018 to 2021, constituting 244 observations. The empirical results indicate that political connections of large shareholder, CEO, and other board members have a significant positive impact on firm value. These political connections can provide potential benefits to companies, especially in accessing valuable resources and receiving preferential treatment in government contracts. Politically connected firms may also benefit from reduced political risks and collaborate in uncertain and challenging economic and regulatory environments more effectively. However, the presence of politically connected governmental ownership is not related to the firm's market value. Furthermore, the study highlights the important monitoring and governance role of the board of directors in mitigating agency problems, increasing transparency, and improving decision-making processes, ultimately enhancing firm value. The results show that board diversity and independence are positively related to firm market value, but board duality has a negative impact. These findings support the hypothesis that diverse and independent boards are essential and effective internal governance mechanisms, particularly in emerging market environments where corporate governance may be weak and insufficient. Finally, the results also indicate that political connections and board characteristics are critical determinants of firm value. Companies that strategically manage their political relationships while maintaining an effective board are likely to enhance their market value. On the other hand, politically connected firms lacking diversity and independence may be more prone to opportunistic behaviors, leading to potential risks related to reputational and financial issues. Additionally, the study tests the robustness of estimated models using alternative measures of firm value. Therefore, it provides significant contributions to existing literature and offers valuable insights for academics, shareholders, managers, investors, and policymakers in emerging markets. Specifically, it helps in understanding the pros and cons of using political connections and shaping the board structure to improve firm value and make relevant decisions.

In this paper, we analyse the relationship between the distribution of ownership and firm value in the presence of multiple blockholders. In recent years, the topic has attracted the attention of many scholars. Yet, the empirical evidence on the relationship between the distribution of ownership among large shareholders and firm value has been non-conclusive and contradictory. We focus on the interaction between a controlling block of shareholders and a non-controlling block that can monitor the largest controlling block. We develop and simulate a simple model combining the two effects related to the presence of additional blockholders that can monitor the largest controlling block of shareholders. The first concerns the incentives of the controlling blockholders to expropriate other shareholders (the alignment effect); the second concerns the incentives for non-controlling blockholders to exercise monitoring activities (the monitoring effect). We examine the influence of the distribution of ownership between controlling and non-controlling shareholders on the total amount of company resources diverted to provide private benefits to controlling shareholders. Since net firm value is decreasing in the amount of company resources diverted, our analysis sheds light on the relationship between the ownership structure and firm value. We show that, in the presence of multiple blockholders, the relationship between ownership concentration and firm value may change depending on the relative size of the shareholders and the relative size of private benefits of control. Our results help in understanding the variety of shapes that have been empirically detected, and shed some light on the conditions that make optimal diversions, as a function of the level of ownership concentration, monotone (increasing and decreasing) or non-monotone.

We present a model of the effects of legal protection of minority shareholders and of cash flow ownership by a controlling shareholder on the valuation of firms. We then test this model using a sample of 371 large firms from 27 wealthy economies. Consistent with the model, we find evidence of higher valuation of firms in countries with better protection of minority shareholders, and weaker evidence of the benefits of higher cash flow ownership by controlling shareholders for corporate valuation.

Purpose – The purpose of this paper is to investigate the relationship between corporate governance mechanism and firm value of the listed companies in China. Does the better corporate governance lead to the higher firm value? Or does the higher firm value make it easy to choose a better governance mechanism? Or they affect each other? In other words, this paper tries to answer whether the corporate governance mechanism is only decided by institutional arrangement, or by market choice according to firm value or performance or by the interaction of institutional arrangement and market choice? It tries to answer whether institutional arrangement maximizes the firm value, or an invisible hand pushes them to arrive at its maximum. Design/methodology/approach – This paper establishes an analytic framework of simultaneous equations based on causality, which includes five endogenous variables: ownership of larger shareholders, managerial ownership, director compensation, debt financing and firm value. It adopts 1,644 data samples from 274 Chinese listed companies in Shanghai and Shenzhen Stock Exchange during 2007- 2012 after the non-tradable shares reform. Ordinary least squares (OLS) estimation of single equation, 2SLS and 3SLS estimation of simultaneous equations are respectively done to show the differences of these three kinds of estimations. Findings – The empirical results show that differences exist among OLS, 2SLS and 3SLS estimation. Finally, 3SLS estimation should be adopted because the OLS and 2SLS estimation are biased. There are endogenous relationships between corporate governance mechanism and firm value. Through the 3SLS estimation, it is found that first, ownership concentration and firm value affect each other positively. Second, managerial ownership and firm value affect each other positively; third, director compensation and firm value affect each other negatively, while director compensation and firm performance affect each other positively. Finally, debt financing level and firm value are negatively related to each other. Practical implications – It means that ownership of large shareholders, managerial ownership, director compensation and debt financing in the Chinese listed companies are found to have a root in the interaction between institutional arrangement and market choice. It is also found that adverse selection occurs when creditors loan to the listed companies. Managerial compensation is positively related to accounting profit, but it is negatively related to firm value because managers increase profit due by earning management. This could only increase the accounting profits and obtain huge cash compensation, but not increase firm value and even harm the interests of shareholders. Originality/value – This paper not only shows the difference between OLS and 2SLS estimation but also compares the estimation of 2SLS and 3SLS in terms of empirical methods. It gives answers to the following questions: whether the relationship is one-way causality or bilateral causality between ownership concentration, managerial ownership, director compensation and firm value; whether governance mechanism affects firm value by institutional arrangement, or market drives both of them to strike a balance by an invisible hand. In other words, does it make them arrive at equilibrium through the competitive selection process when shareholders, directors, managers and creditors attempt to maximize themselves of their interests?

Multiple Large Shareholders and Firm Value