Ownership Structure, Tax Regime, and Dividend Smoothing

PurposeThe purpose of this study is to investigate simultaneous relations between corporate governance (CG) practice and cash flow right, cash flow leverage (the divergence between control right and cash flow right of controlling shareholders). The two ownership measures reflect alignment and expropriation incentives of controlling shareholders. This study also examines the effect of multiple large shareholders (MLSs) on CG practice.Design/methodology/approachThe study uses publicly listed companies (PLCs) excluding those from the Indonesian finance sector during 2011-2013 as the samples of the study. Two-stages least squares regression models were used to test the simultaneous relations between CG practice and ownership structure variables. The study develops a CG instrument to measure CG practice based on ASEAN CG Scorecard, that comprehensively covers OECD CG principles and that can be used for panel data.FindingsCG practice has a positive influence on cash flow right and has a marginally negative impact on cash flow leverage, while cash flow right and cash flow leverage have a marginally negative impact on CG practice. Further, the existence of large MLS complements CG practice, but as the control right of the second largest shareholders becomes closer to the largest shareholder, the complement relation becomes less important. State- or foreign-controlled PLCs practice better CG than other PLCs.Research limitations/implicationsStudies on CG/ownership structure need to treat CG and ownership structure as endogenous variables in their research design. In addition, the level of rule of law in a country should be taken into account when examining the relation between CG and ownership structure. The interrelation among CG, ownership structure, capital structure and firm performance has been studied in the context of dispersed ownership structure and strong rule of law. Thus, future study needs to examine the interrelation among these four concepts in countries with high concentrated ownership and weak rule of law.Practical implicationsTo minimize the risk of expropriation, investors in the capital market need to select shares of PLCs that practice CG suitable for the ownership structure of PLCs, have high ownership by the largest shareholder and have no divergence between control and ownership right, and or have MLSs. PLCs may need to choose the level of CG mechanism in the context of their ownership structure and consider the benefits and costs implementing them.Social implicationsThe study supports the “one size does not fit all” perspective on CG and, thus, it supports the recently enacted financial service authority (FSA) rule requiring PLCs to follow the “comply or explain” rule on the CG code for PLCs. The FSA needs to enforce the compliance of PLCs with CG rules and encourage PLCs to implement CG in substance, not just in form. To strengthen the positive impact of good CG practice in attracting investments in capital market, the regulator needs to improve investor protection rules and ensure strong rule of law.Originality/valueThe study is the first to examine the simultaneous relation between CG practice and both cash flow right and cash flow leverage of the largest shareholder. It is also the first that investigates the impact of MLS on CG practice. It explores the complement and substitution relation between the two concepts in reducing agency costs. In term of research design, the study develops a CG instrument that is based on OECD CG principles, that can be used for panel data and that uses public information.

The recombining binomial tree approach, which has been initiated by Cox et al. (J Financ Econ 7: 229–263, 1979) and extended to arbitrary diffusion models by Nelson and Ramaswamy (Rev Financ Stud 3(3): 393–430, 1990) and Hull and White (J Financ Quant Anal 25: 87–100, 1990a), is applied to the simultaneous evaluation of price and Greeks for the amortized fixed and variable rate mortgage prepayment option. We consider the simplified binomial tree approximation to arbitrary diffusion processes by Costabile and Massabo (J Deriv 17(3): 65–85, 2010) and analyze its numerical applicability to the mortgage valuation problem for some Vasicek and CIR-like interest rate models. For fixed rates and binomial trees with about thousand steps, we obtain very good results. For the Vasicek model, we also compare the closed-form analytical approximation of the callable fixed rate mortgage price by Xie (IAENG Int J Appl Math 39(1): 9, 2009) with its binomial tree counterpart. With respect to the binomial tree values one observes a systematic underestimation (overestimation) of the callable mortgage price (prepayment option price) analytical approximation. This numerical discrepancy increases at longer maturities and becomes impractical for a valuable estimation of the prepayment option price.

This paper examines the effect of ownership structure on firm-specific stock price crash risk using listed firm (KOSPI) data in Korea. Prior literatures suggest that corporate governance has an impact on the level of disclosure and the quality. Managers may stockpile negative information about the company, but when such accumulated bad news crosses a threshold, the negative information suddenly becomes publicly available and a stock price crash is observed (Hutton, Marcus, & Tehranian 2009). Prior studies have documented the determinants of future stock price crash risk (Jin & Myer 2006; Hutton et al. 2009; Kim, Li, & Zhang 2011; Hamm, Li, & Ng 2013; Xu, Jiang, Chan, & Yi 2013; Jo, Moon, & Choi 2015; Kim & Zhang 2016). However, it is hard to find the papers about corporate ownership and future stock price crash risk at the term of determinants of the risk. Compare to some financially advanced countries where ownership and management are effectively separated, there is no clear distinction between ownership and management in Korea. Using the percentage of managerial ownership and that of foreign ownership as proxies for ownership structure and measures for future stock price crash risk which was used by Callen and Fang (2013, 2015) and Kim and Zhang (2016), we conducted an empirical analysis examining the link between corporate ownership structure and companies’ subsequent stock price crash risk.
 We collect 4,294 firm-year observations listed on Korean market from 2002 to 2015, and we use the measures of firm-specific stock price crash risk based on Callen and Fang (2013, 2015) to examine the relation between corporate ownership structure and subsequent stock price crash risk.
 From the empirical tests, the percentage of managerial ownership is negatively associated with future stock price crash risk. It implies that managerial ownership increases to align the interests of shareholders and managers, it could alleviate the agency problem between them (Jensen & Meckling 1976), helping to resolve information asymmetry and prevent bad news from being withheld, ultimately lowering future stock price crash risk. In addition, we find that higher foreign ownership significantly weakens the negative relation between the percentage of managerial ownership and future stock price crash risk. We interpret this results that the negative side of foreign ownership failed to effectively reduce agency costs, weakening the negative correlation between managerial ownership and future stock price crash risk.
 Our study may shed some light on the understanding of the ownership structure as a determinant of future stock price crash risk to firms and investors who want to handle crash risk in the stock market.

This study reviewed whether corporate ownership structure that was divided into family-oriented ownership structure and institutional-oriented ownership structure had impact on tax avoidance. This study covered all industrial manufacturers listed in Indonesia Stock Exchange in 2013 with a population of 136 companies; however, only 121 companies met the sampling criteria. Two companies were delisted from Indonesia Stock Exchange, and 13 other companies did not issue their data needed in their financial report. Statistical analysis showed that both family-oriented ownership structure and institutional-oriented ownership structure did not have significant effect on tax avoidance. This finding indicates that companies with concentrated ownership structure prefer not to be involved in tax avoidance practices which have big penalty risk from tax institutions in case of malpractice.

Manuscript Type: Empirical Research Question/Issue: The relationships between corporations and their stakeholders are often based on incomplete contracts, which are difficult to enforce in courts. Corporate managers play a key role in safeguarding incomplete contracts with stakeholders. This role requires a strong prosocial motivational orientation. Although the managers’ motivational orientation is invisible, stakeholders can make inferences about it from managers’ choices and behavior. Based on these ideas, this paper asks whether the managers’ motivational orientations vary according to the firms’ ownership structures, i.e., ownership by relational and external blockholders. Research Findings/Insight: Results show that ownership by relational blockholders is associated with more prosocially oriented managers, whereas ownership by external blockholders is related to more self-interested managers. This study adopts an unobtrusive measure to infer the managers’ motivational orientation. This measure reflects the managers’ willingness to pay taxes and can be assessed systematically in the Swiss empirical context. The results are corroborated using multivariate regression analysis and profile deviation analysis. Theoretical/Academic Implications: This paper joins incomplete contract theory and behavioral economics to analyze how the shareholder primacy model and the stakeholder model fit with different types of managers. Based on the idea of profile deviation, we suggest that corporate ownership structure is an important factor influencing the degree to which firms approximate these two corporate governance models, and thereby their fit with the respective manager type. Practitioner/Policy Implications: The theoretical arguments and the empirical evidence suggest that the fit between corporate ownership structure and managerial motivation merits consideration. When selecting managers, boards need to pay attention not only to their skills and competencies, but also to their motivational orientation in order to capitalize on the strengths of alternative corporate governance models.

The principal objective of this study was to assess the dynamic dividend behavior of firms in Korea. Specifically, this study tests the presence of dividend smoothing and identifies the firm-level factors influencing the degree of dividend smoothing. For this purpose, 299 firms listed on the Korea Stock Exchange over a 26-year period, from 1981 to 2006, were investigated.The empirical results of this study demonstrate that Korean firms made dividend payments which were quite closely related to the average interest rate over the sample period. A change in dividend payments is less likely to reflect a change in the fundamentals of Korean companies. Instead, it appears to be related significantly to movements in the interest rate. This study also finds that the majority of Korean firms pay smoothed dividends. However, the degree of dividend smoothing in Korean firms was determined to be lower than that observed in US firms. In addition, the results demonstrate that the longterm target payout ratio is significantly lower than the observed payout ratio. The results indicate that Lintners dividend smoothing model does not explain the dynamic dividend behavior in Korea.The theoretical determinants of dividend smoothing were assessed by regressing the degree of dividend smoothing of firms against the firm characteristics. The results show that riskier firms tend to pay more smoothed dividends, thus supporting the prediction previously made by Kumar (1988). However, contrary to the theoretical predictions, our results find that larger and older firms are more likely to smooth dividends in Korea. Controlling shareholders ownership, growth, and financial slack all appear to exert insignificant effects on the degree of dividend smoothing. The results suggest that the information and agency theories of dividend smoothing do not explain the dynamic dividend policy of Korean firms.

This paper aims to examine the effects of dividends, types of ownership structure and board governance on Malaysian firm’s value using sample of 406 listed firms on the Main Board of Bursa Malaysia. A cross-sectional analysis for the years 2002 and 2005 was utilised. Both direct effects as well as the moderating effects of board governance with dividends and types of ownership structure are examined. The moderating relationship is considered in order to investigate the board governance role after the implementation of the Malaysian Code of Corporate Governance through the amendments of Bursa Malaysia Listing Requirements in 2001. Result from the direct effect reveals that dividend has a significant positive effect to firm value in both years, thus supporting the expected hypothesis. This finding is consistent with the view that dividends mitigate agency costs of free cash flow problem, therefore, increase firm value. The finding also suggests that dividends among Malaysian listed firms can play its important monitoring role in reducing agency costs. However, contrary to expectation, government ownership indicates significantly positive relationship. Correspondingly, the result implies that investors in the Malaysian market do value the higher standards of corporate governance reform found in the government-controlled firms. In addition, foreign ownership has a negative significant relationship to firm value which is also contrary to what is expected. Surprisingly, results on ownership concentration and managerial ownership provide insignificant effect to firm value for both years. Of particular interests are the results of moderating effects, the result reveals that board duality has significantly moderated the relationship between dividends and firm value with a lower coefficient positive effect as expected. Thus, support the expected hypothesis. As expected, the result from the moderating effect of board duality with government ownership in year 2002 provided negatively significant result. However, both results of board duality with dividends and government ownership provide insignificant effect for the year 2005. Further, the interaction term between dividends with board independence was positively significant for the year 2005. Whereas, the interaction term between dividends and board size showed significantly lower coefficient positive moderating effect for both years. Finally, the inclusion of board size interaction term to foreign ownership provided significantly negative moderating effect in year 2002. Overall, findings from this paper reveal that good board governance; particularly board independence and board size can enhance the monitoring role of dividends, government, and foreign ownership in reducing agency costs, thus increasing firm value. Keywords: board governance; dividends; moderating effects; ownership structure

The difference in interests between investors and company managers creates a conflict of interest, so in this case, a solution is needed to reduce this problem, namely by issuing an agency cost. This study was conducted to determine the effect of free cash flow, managerial ownership, outsider block ownership, and capital structure on agency costs in Indonesia. The population in this study were all non-financial sector companies that have been listed on the Indonesia Stock Exchange for the 2014-2018 period using multiple regression analysis techniques. The results of this study explain that free cash flow, managerial ownership, and capital structure have a significant positive effect on agency cost. Meanwhile, ownership of an outsider block does not affect agency cost. This study contributes to the science of corporate governance, especially the mechanism for reducing agency costs, and contributes to the non-financial companies themselves to reduce agency costs with manager or manager ownership programs and the right decisions in the use of corporate debt.

Which Stocks are Inflation-Proof?

Ownership structure constitutes a fundamental component of corporate governance systems, influencing strategic decision-making processes, power distribution, and the allocation of economic rights within organizations. Variations in ownership composition—managerial, institutional, public, and foreign directly affect internal control and monitoring mechanisms. Significant managerial ownership can align management and shareholder interests, while institutional ownership enhances managerial discipline through superior monitoring capacity. Public ownership promotes information transparency, whereas foreign ownership often introduces international governance standards. Good Corporate Governance (GCG) operates as a formal mechanism to ensure that corporate management adheres to the principles of transparency, accountability, responsibility, independence, and fairness. The synergy between an optimal ownership structure and robust GCG can reduce agency costs, improve operational efficiency, and strengthen corporate reputation and competitiveness. Conversely, weak governance may lead to entrenchment effects, free rider problems, and moral hazard. This study employs a qualitative approach using a systematic literature review to examine the interplay between ownership structure, GCG effectiveness, and financial performance. The findings are expected to provide theoretical contributions by enriching the corporate governance and financial management literature, as well as practical implications for managers and regulators in designing ownership strategies and governance policies that promote sustainable corporate value creation.

Purpose : The study was carried out to produce empirical evidence to examine the relationship among corporate governance (CG) parameters, ownership structure, and corporate performance.Methodology : CG parameters included board size, CEO duality, board meetings attended, board busyness, and audit committee size and its independence. The ownership of the structure was determined by insider, foreign, and institutional ownership. A sample of 500 NSE-listed firms was selected for the study. Data analysis was conducted using STATA 17 and SPSS 25. Before conducting the regression analysis, the study undertook a series of diagnostic tests to ensure the reliability, robustness, and validity of both the dataset and the econometric models employed.Findings : The findings indicated that CG variables and ownership structure had a positive impact on firm performance. To elaborate, CEO duality ; board meetings attended ; board busyness ; audit committee size ; and insider, foreign, and institutional ownership were found to have a positive impact on performance. However, neither board size nor audit committee independence established any influence.Practical Implications : Companies may adapt their governance structures and diversity initiatives to enhance their competitive advantage and long-term sustainability. This study emphasized the importance of enhancing corporate governance (CG) and strengthening laws to achieve better firm performance in emerging markets. Additionally, the interests of insiders, as well as those of foreign and institutional investors, must be aligned with the company to support long-term wealth creation.Originality : Instead of utilizing the standard system found in the literature, we relied on a single-measure structure that incorporated a variety of CG parameters and ownership.

The purpose of this study was to investigate the effects of corporate governance, ownership structure, and cash on hand on Firm Value on manufacturing companies listed in Indonesia Stock Exchange. The dependent used in this study was the firm value whereas the independent used in this study were the corporate governance, ownership structure, and cash on hand. This study used these following measurement methods: Tobin’s Q - used to measure the firm value; board size, independent director, and audit quality were used to measure the corporate governance, proportion of managerial ownership was used to measure the ownership structure, and natural logarithm of year-end cash was used to measure the cash on hand. This study also used the leverage, firm size, firm age, and dividend payment as controlling variables. The sample of this study consisted of 74 manufacturing firms obtained from Indonesia Stock Exchange from year 2014 to 2017. The technique used for this analysis was the multiple regression. The result of this study suggested that the cash on hand had negative and significant effects on firm value when the leverage, firm size, firm age, and dividend payment were used as controlling variables. On the other hand, this study also suggested that the corporate governance and managerial ownership had no significant effect on the firm value when the leverage, firm size, firm age, and dividend payment were used as controlling variables. Keywords: firm value, corporate governance, ownership structure, cash on hand

This study investigates top management tenure, corporate ownership structure and board composition as predictors of different aspects of golden parachute magnitude: size and the number of executives covered. We found that golden parachute contracts involve higher levels of payment (in years' compensation) when top management is longer-tenured, both in absolute number as well as relative to directors. Golden parachutes are found to extend to fewer executives when non-management-owned blocks of stock are highly concentrated and when the level of management-owned stock is relatively low. The research points to the importance of examining ownership structure, board subcommittee composition and top executive tenure when researching decisions made by corporate boards.

The Determinants of Corporate Ownership Structure: Australian Evidence

PurposeThe purpose of this paper is to examine the influence of institutional investors’ investment horizons (IIIH) on a wide variety of key corporate policies.Design/methodology/approachThe authors perform regression analysis to a panel data set of quarterly financial statement data for US firms over the 1981-2014 using several measures of IIIH.FindingsThe authors argue that an increase in the presence of long-term investors contributes to more effective monitoring and information quality. This results in a reduction in agency costs and informational asymmetry problems for firms that are more heavily influenced by long-term investors, which in turn influences the corporate policies they pursue. Consistent with these arguments, the evidence suggests that firms with a greater long-term institutional investor base maintain lower investment outlays, higher dividend payments, lower levels of cash and higher levels of leverage. All results hold after controlling for potential endogeneity issues.Originality/valueThe authors show that a greater presence of long-term institutional investors leads to higher dividends, lower investment outlays, lower cash holdings and higher leverage. The comprehensive nature of the predictions with respect to overall corporate finance policies and the supporting evidence provided represents an important contribution, as previous studies have tended to focus on one specific area of corporate behavior (i.e. such as cash holdings).