Ownership dispersion across large shareholders and loan-syndicate structure

This study tests the relationship between ownership dispersion across large shareholders and the structure of loan syndicates. The results of an analysis of a set of bank loan contracts that were extended to Indonesian listed firms, from 1992 to 2016, show that an uneven ownership distribution between the largest controlling shareholder and multiple large shareholders is associated with a smaller and more concentrated syndicate. In line with the agency and moral hazard theoretical framework, the results suggest that in a weak legal system, when banks are lending to companies that are at a high risk of expropriation, they decrease the syndicate size and increase the syndicate concentration in order to intensify their efforts in due diligence and monitoring.     

Ownership structure and dividend policy: Evidence from Italian firms

Abstract

This paper reports on empirical investigations into the relationship between dividend policy and ownership structure of firms, using a sample of 139 listed Italian companies. Ownership structure in Italy is highly concentrated and hence the relevant agency problem to analyse seems to be the one that arises from the conflicting interests of large shareholders and minority shareholders. This paper therefore attempts to test the rent extraction hypothesis by relating the firm’s dividend payout ratio to various ownership variables, which measure the degree of concentration in terms of the voting rights of large shareholders. The hypothesis that other non-controlling large shareholders may have incentives to monitor the largest shareholder is also tested. The results of the empirical analysis reveal that firms make lower dividend payouts as the voting rights of the largest shareholder increase. Results also suggest that the presence of agreements among large shareholders might explain the limited monitoring power of other ‘strong’ non-controlling shareholders.     

Corporate Social Responsibility,Tax Aggressiveness,and Firm Market Value

This paper examines the relationship of corporate social responsibility (CSR), tax aggressiveness, and firm market value. An economic model has been developed to show that profit‐maximization firms are willing to incur additional costs in CSR, such as paying more taxes, as long as they can differentiate their products from non‐CSR firms, and that socially conscious consumers will buy products from CSR firms at prices higher than those of non‐CSR firms. The empirical study in this paper indicates that the higher the CSR ranking of a firm, the less likely a firm is to engage in tax aggressiveness. It also indicates that a reputation of higher CSR will enhance firm market value. Using Canadian companies listed in the S&P/TSX 60 index, I find that both firms’ five‐year effective tax rates and annual effective tax rates are positively associated with their overall CSR scores as well as with their social scores. Firms’ five‐year effective tax rates are also positively associated with their governance index. I also find that firms’ overall CSR ranking and governance scores are positively associated with their market value.     

Dividend taxation and the ownership structure of private firms

This paper examines the effect of dividend taxation on the ownership structure of private firms. I exploit a German dividend tax increase that only affects corporate shareholders owning a minority stake. Using data on private German firms and their shareholders, I find that corporate shareholders reduce their minority stakes in firms after the dividend tax reform. This result is in line with the notion that, because minority shareholders do not have sufficient decision-making power to influence the payout policy, they can only react to a dividend tax increase by selling their shares. This effect is larger when the affected minority shareholders face high dividend tax costs. However, I find a smaller effect when the benefits of the minority stakes are highly relevant for the firm and the affected shareholders, suggesting that non-tax factors mute the response to dividend taxes. In addition, I find that the largest shareholder of the firm buys the minority stake, resulting in greater ownership concentration. These findings extend the prior literature that finds no effect of dividend taxes on the ownership structure of private firms.     

Controlling Shareholders’ Incentive and Corporate Tax Avoidance: A Natural Experiment in China

The split share structure reform removes a significant market friction in China's capital market by allowing previously non‐tradable shares to be freely tradable at market prices. Such a reform reduces the agency conflict between controlling shareholders and minority shareholders as the former now care more about stock prices. We find that state‐owned firms, but not non‐state‐owned firms, significantly increased their tax avoidance activities after the reform. We attribute this differential effect to the dual role of the government as state‐owned firms’ controlling shareholder as well as the tax claimant. Further, this effect is more pronounced for state‐owned firms that are more likely to be influenced by the government prior to the reform. Finally, the reform reinforces a positive association between tax avoidance and firm value. Overall, our study suggests that when controlling shareholders are more concerned about stock prices, state‐owned firms engage more in tax avoidance activities to enhance firm value.     

Directors’ and Officers’ Liability Insurance and Aggressive Tax‐Reporting Activities: Evidence from Canada

This paper examines the relationship between directors’ and officers’ liability insurance (D&O insurance) and firms’ aggressive tax reporting. Using large Canadian public companies listed on the TSX300 and relying on several measures to capture aggressive tax‐reporting activities, including GAAP effective tax rates, cash effective tax rates, and the total and residual book‐tax differences, I find that D&O insurance exhibits a strong negative relationship with the GAAP effective tax rates and a strong positive relationship with both the total and residual book‐tax differences. However, there is generally no evidence showing that D&O insurance is associated with the cash effective tax rates. I interpret these results as indicating that D&O insurance reduces the tax expenses reported in the financial statements but not the actual tax paid. In other words, D&O insurance contributes to financial tax management but not to cash tax savings. Further tests in this study reveal that firms with fluctuating D&O coverage limits engage in more aggressive tax reporting than other firms, suggesting that managers may consider the level of D&O insurance that they purchase when they make aggressive tax‐reporting decisions.     

Corporate ownership,corporate governance reform and timeliness of earnings: Malaysian evidence

This paper provides the first evidence showing that ownership concentration and the identity of the largest shareholder matter to the timeliness of corporate earnings, measured by a stock price-based timeliness metric and the reporting lag. Using panel data of 1276 Malaysian firms from 1996 to 2009, we find a non-linear relationship between concentrated ownership, measured by the largest shareholding in a firm, and the reporting lag but not the timeliness of price discovery. Although firms with government as the largest shareholder and political connections have a significantly shorter reporting lag, only the former are timelier in price discovery. Firms with family and foreigners as the largest shareholder however are less timely in price discovery. While the reporting lag is shorter in the period after the integration of the Malaysian Code of Corporate Governance (MCCG) into Bursa listing rules, its impact on the timeliness of price discovery is mostly immaterial.     

Agency costs and tax planning when the government is a major Shareholder

In state owned enterprises (SOEs), taxes are a dividend to the controlling shareholder, the state, but a cost to other shareholders. We examine publicly traded firms in China and find significantly lower tax avoidance by SOEs relative to non-SOEs. The differences are pronounced for locally versus centrally-owned SOEs and during the year of SOE term performance evaluations. We link our results to managerial incentives through promotion tests, finding that higher SOE tax rates are associated with higher promotion frequencies of SOE managers. Our results suggest managerial incentives and tax reporting are conditional on the ownership structure of the firm.     

Does the type of ownership control matter? Evidence from China’s listed companies

By tracing the identity of large shareholders, we group China’s listed companies into those controlled by state asset management bureaus (SAMBs), state owned enterprises (SOEs) affiliated to the central government (SOECGs), SOEs affiliated to the local government (SOELGs), and Private investors. We argue that these distinct types of owners have different objectives and motivations and this will affect how they exercise their control rights over the firms they invest in. In particular, we contend that private ownership of listed firms in China is not necessarily superior to certain types of state ownership. To test our arguments we investigate the relative efficiency of state versus private ownership of listed firms and the efficiency of various forms of state ownership. The empirical results indicate that the operating efficiency of Chinese listed companies varies across the type of controlling shareholder. SOECG controlled firms perform best and SAMB and Private controlled firms perform worst. SOELG controlled firms are in the middle. The results are consistent with our predictions.     

Shareholder composition,share turnover,and returns in volatile markets: The case of international REITs

The shareholder composition of listed property companies has changed from the fragmented, retail ownership, to more concentrated, institutional ownership over the past decade. In this paper, we first document significant variation in the composition of the shareholder base across the world's five largest listed property markets. We then examine the relation between the composition of the shareholder base and stock market performance and share turnover during the turbulent trading days of 2008 and 2009. By directly relating the shareholder base of firms to excess returns and turnover on these volatile days, we are able to isolate the importance of shareholder composition during periods when trading behavior is most likely to vary across different types of shareholders. We find that both large block holdings and high levels of institutional ownership decrease trading volumes and moderate stock returns; however, the effects largely occur when stock prices move sharply downward. Moreover, these effects are strongest when ownership concentration and institutional ownership exceed 25 percent. We also find that the disaggregation of institutional investors into distinct categories (banks, pension funds, advisors, etc.) increases our understanding of stock trading and share price dynamics of listed property companies.     

Shareholder Rights,Insider Ownership and Earnings Management

This paper examines whether shareholder rights, which enable shareholders to replace managers, can constrain earnings management, and whether this effect is conditional on the level of insider ownership. Using the comprehensive shareholder rights measure constructed by Gompers et al. ( 2003 ), we find that firms with stronger shareholder rights are associated with fewer income‐increasing discretionary accruals, suggesting that stronger shareholder rights deter managers from reporting aggressive earnings. Moreover, if insider ownership introduces managerial entrenchment, managers with higher ownership would be insulated from shareholder discipline. Consistent with this entrenchment theory, we find that the association between shareholder rights and earnings management becomes insignificant in the presence of higher levels of insider ownership. Shareholder rights are negatively associated with earnings management only when insider ownership is low. Our results indicate that the disciplinary effect of shareholder rights can be attenuated by high levels of insider ownership.     

Institutional investors,controlling shareholders and CEO pay‐performance relationship: evidence from China

Using a large sample of China’s listed firms between 2005 and 2015, we find that domestic mutual funds have a positive effect on the CEO pay‐performance relationship, and this effect becomes stronger when their ownership is higher and closer to the controlling shareholder’s ownership. This effect is stronger in non‐state‐owned enterprises (non‐SOEs), firms facing weaker industry competition incentives, and firms located in more developed regions. However, Qualified Foreign Institutional Investors (QFIIs) do not have such an influence. Overall, our study contends that the effectiveness of institutional investors’ monitoring role is subject to their identity, controlling shareholders and institutional environments.     

Saving or tunnelling: value effects of tax avoidance in Chinese listed local government-controlled firms

This paper investigates the value effect of tax avoidance and its underlying mechanisms among Chinese listed local government-controlled (LG) firms. We show that tax avoidance does not promote firm value in LG firms with government ownership smaller than 40 percent and the above negative tunnelling effect is more pronounced when the control rights are concentrated in the local government and weaker when other large shareholders can act as a countervailing force. Finally, we observe a positive relation between tax avoidance and related-party transactions as well as overinvestment, again indicating a tunnelling effect in LG firms with government ownership smaller than 40 percent.     

Ownership structure and real earnings management: Evidence from China

Although ownership structure is fundamental to corporate accounting behaviors, the current literature provides scarce evidence about the governance effect of ownership structure on real earnings management (REM). We seek to address this issue by using a sample of Chinese listed firms which are likely to engage in earnings management during 2003–2014. We find that Chinese firms with more influential largest shareholders are more prone to REM; and that firms with state control and managerial ownership are less likely to engage in REM. We further find that there exists a joint and sequential relationship between REM and accrual-based earnings management in China. Our findings are robust to different variable measurements, samples and regression models. Our study contributes to the research on the relationship between ownership structure and earnings management and contributes to the understanding of REM in emerging economies. Our findings have significant implications for shareholders, analysts and regulators, and are important and relevant given that MSCI decides to include China mainland stocks in its indexes starting 2018.     

Multiple blockholders and earnings management

This paper examines the impact of multiple blockholders on earnings management when the main conflict of interest is between controlling shareholder and other shareholders. Using a sample of Chinese listed firms from 2000 to 2017 and controlling for potential sample selection and endogeneity, we find that firms with multiple blockholders tend to have higher earnings management than firms with a single controlling shareholder. The positive impact of multiple blockholders on earnings management is more pronounced when those blockholders are the same type – state or private. Earnings management is also enhanced with more large shareholders and higher relative ownership of other large shareholders to the controlling shareholder. The results are consistent with the cost-sharing hypothesis, where the other large shareholders shoulder the costs of earnings management with the controlling shareholder proportionally, but not the private benefits of control. Further tests show that the positive relation between multiple large shareholders and earnings management is less pronounced in firms with stronger internal or external governance. Overall, our paper demonstrates a potential dark side of multiple blockholders from the angle of financial reporting quality.     

Corporate governance and firm value: Evidence from Chinese state-controlled listed firms

The association between corporate governance and firm value has been extensively studied in Chinese listed firms. Based on the characteristics of their ultimate shareholders, Chinese listed firms can be categorised as (1) central state-controlled, (2) local state-controlled or (3) non-state-controlled. Some scholars have described Chinese government policy as ‘zhuada fangxiao’, thus suggesting that the corporate governance mechanisms (CGMs) of central state-controlled listed firms (SCLFs) are better than those of local state-controlled listed firms. Therefore, this paper specifically examines the influence of CGMs on the value of central SCLFs and local SCLFs. Analysis of 2006 firm-year observations from 2007 to 2009 suggests that the aggregate ownership of other large shareholders and the remuneration of top executives exhibit different effects on firm value in central and local SCLFs. The results also provide evidence that there is no endogenous effect of firm value on the ownership of the largest shareholder in central and local SCLFs.     

Do shareholders really matter for firm performance? Evidence from the ownership characteristics of Italian listed companies

This paper studies the impact of the features of the shareholder base on the performance of a large sample of Italian listed firms between 2007 and 2019, both within and across firms. We expand the empirical evidence on the relation between shareholder type and different dimensions of firm performance by dividing shareholders into six categories, and further differentiating between domestic and foreign investors. We provide extensive evidence on the relation between firm performance and different types of shareholders, showing how diverse performance metrics are correlated with the voting rights of specific types of shareholders. Consistent with previous studies, the picture that emerges from our analysis shows that the ownership structure of Italian listed companies is characterized by a high degree of concentration. In this context, we find that ownership concentration or the presence of a controlling shareholder is in general associated with better performance. Moreover, a positive relation exists between diverse firm performance metrics and the voting rights of family shareholders, founders and foreign investors, while government ownership is detrimental in the short-term.     

Ownership concentration,foreign shareholding,audit quality,and stock price synchronicity: Evidence from China

This paper investigates the effects of largest-shareholder ownership concentration, foreign ownership, and audit quality on the amount of firm-specific information incorporated into share prices, as measured by stock price synchronicity, of Chinese-listed firms over the 1996–2003 period. We show that synchronicity is a concave function of ownership by the largest shareholder with its maximum at an approximate 50% level. Further, we find that synchronicity is higher when the largest shareholder is government related. We also find that foreign ownership and auditor quality are inversely associated with synchronicity. Finally, we show that the amount of earnings information reflected in stock returns is lower for firms with high synchronicity.     

股利政策、股权制衡与公司成长性

本文以我国2005年-2007年中小板市场上市公司为样本（面板数据），从公司成长性的角度考察了股权结构对现金股利政策的实证影响。具体检查了现金股利和第一大股东、股权制衡以及公司成长性之间的计量关系，经验结果表明：中小板公司的第一大股东具有强烈的发放现金股利的激励，公司成长性不能弱化第一大股东对现金股利的偏好，其他大股东不能够对第一大股东的行为进行监督和牵制，甚至存在附和第一大股东的倾向。     

Insider Ownership,Subsidiary Cash Holdings,and Economic Consequences: Evidence from Listed Chinese Companies

ABSTRACT

Using a large sample of listed Chinese companies, we investigate how the equity ownership of business group insiders affects subsidiary cash holdings. We find that ownership by the largest shareholders and senior managers in the listed parent firm is negatively related to its subsidiaries’ cash holdings, whereas there is a positive relationship with minority equity in subsidiaries. We also find that the market places a more significant value discount on listed firms whose cash holdings are more located in the affiliated subsidiaries. Our evidence demonstrates how cash policy inside business groups is influenced by insider ownership, and it reveals to what extent cash allocated in subsidiaries may suffer from losses in efficiency.