Does corporate diversification create value in emerging markets? New evidence from Chile

Using a sample of 85 Chilean firms listed in the Santiago Stock Exchange from 2005 to 2013, we analyze the impact of corporate diversification on firm value. We consider voting rights of the main shareholder and institutional investors’ influence on firm value. We report firm‐value destruction for diversified firms. Regarding ownership concentration, we report a negative relation between the largest shareholder ownership and firm value. Separation between voting rights and cash flows rights of this shareholder is negatively related to firm value. While Pension Fund Administrators (AFP) mitigate firm value destruction in diversified firms, other institutional investors do not play an active role in controlling value destruction. Finally, if the largest owner is a family, we report firm‐value creation in diversified firms. Copyright © 2016 ASAC. Published by John Wiley & Sons, Ltd.     

The Shareholder–Manager Relationship and Its Impact on the Likelihood of Firm Bribery

We examine the impact on firm bribery of two corporate governance devices heavily studied in corporate governance research—i.e., separation of ownership and control, and equity share of the largest shareholder. In addition, we investigate the impact of the principal–owner’s gender on firm bribery. From agency theory, we predict that firms with the owner also acting as a manager (owner–manager) are more likely to engage in bribery compared to their counterparts with separation of ownership and control. We argue that an increase of the equity share of the largest shareholder can either increase or decrease firm bribery likelihood depending on the net cost-benefit effect of such bribery actions. In addition, we predict that bribery is more likely to occur when the principal–owner is male rather than female. Using a rich dataset of the World Bank Enterprise Surveys of 2002–2005, we find that the equity share of the largest shareholder is negatively and male principal–owner is positively associated with the likelihood of firm bribery. Furthermore, we reveal that owner–manager is more likely to bribe when the principal–owner is male rather than female. We also observe that the effect of owner–manager is smaller as the equity share of the largest shareholder increases.     

Security Markets versus Bank Finance: Legal Enforcement and Investors' Protection

When minority investors’ rights are poorly protected, the ability of firms to raise equity capital is impaired, leading to less finance for new ventures. Fewer firms will be financed with outside equity, resulting in a low market capitalization relative to GNP. External funding requires easily enforceable claims such as debt or requires long‐term relationships with institutions. Provision of funding shifts from risk capital to debt, and to a predominance of intermediated over market finance. We report supporting evidence for a few countries. To measure investor protection, we use a price measure, the premium on voting stock, related to the control premium. In countries where the voting premium is large, corporate financing is dominated by bank lending and equity markets are much smaller.     

Ultimate ownership,risk-taking and firm value: evidence from China

This article investigates the relationship among ultimate ownership, risk-taking and firm value using firm-level data from Chinese companies. The results indicate that dominant ultimate controlling shareholders exacerbate the agency problem. The larger the divergence between ultimate shareholder’s control rights and cash flow rights, the stronger motivation is to reduce corporate risk-taking (CRT) to safeguard private benefits. Furthermore, the presence of a dominant ultimate controlling shareholder is harmful to firm value, and the divergence between its control right and cash flow right has a significantly negative effect on firm value. Corporate risk-taking plays a significant mediating effect between ultimate controlling shareholder and firm value. Based on these results based on theory and practice, we propose a number of practical implications for managers.     

Outside directors, board interlocks and firm performance: Empirical evidence from Colombian business groups

We investigate the relation of board structure through the appointments of outside directors and the role of busy directors on firm return on assets within an environment of no regulation for privately held firms and voluntary adoption of corporate best practices for security issuers with family controlling blockholders. This study relies on a sample of an average of 335 firms per year for the 1996-2006 period, where 244 are private firms and 285 are affiliated to one of the seven largest non-financial business groups in the country. Five of these groups were, in 2006, still family-controlled. We find a positive relation between both the ratio of outside directors, and the degree of board interlocks, with firm return-on-assets. Outside busy directors turned out to be key drivers of improved firm performance. Appointments of outsiders are endogenous to firm ownership structure. Blockholder activism as well as contestability becomes an internal mechanism that improves director monitoring and ex-post firm valuation.     

Some consequences of the early twentieth-century British divorce of ownership from control

Because ownership was already more divorced from control in the largest stock market of 1911 (London) than in the largest stock market of 1995 (New York), the consequences for the economy, for good or ill, could have been considerable. Using a large sample of quoted companies with capital of £1 million or more, this article shows that this separation did not generally operate against shareholders' interests, despite the very substantial potential for agency problems. More directors were apparently preferable to fewer over a considerable range, as far as their influence on company share price and return on equity was concerned: company directors were not simply ornamental. A greater number of shareholders was more in shareholders' interest than a smaller, despite the enhanced difficulties of coordinating shareholder ‘voice’. A larger share of votes controlled by the board combined with greater board share ownership was also on average consistent with a greater return on equity. Corporate governance thus appears to have been well adapted to the circumstances of the Edwardian company capital market. Hence the reduction in the cost of capital for such a large proportion of British business conferred a substantial advantage on the economy.     

The Value Relevance of Reputation for Sustainability Leadership

This study investigates whether the market valuation of the two summary accounting measures, book value of equity and net income, is higher for firms with reputation for sustainability leadership, when compared to firms that do not enjoy such reputation. The results are interpreted through the lens of a framework combining signalling theory and resource-based theory, according to which firms signal their commitment to sustainability to influence the external perception of reputation. A firm’s reputation for being committed to sustainability is an intangible resource that can increase the value of a firm’s expected cash flows and/or reduce the variability of its cash flows. Our findings are according to expectations and show that the net income of firms with good sustainability reputation has a higher valuation by the market, when compared to their counterparts.     

Cross-Sector Partnerships: City Regeneration and Social Justice

In recent years, firms have greatly increased the amount of resources allocated to activities classified as Corporate Social Responsibility (CSR). While an increase in CSR expenditure may be consistent with firm value maximization if it is a response to changes in stakeholders’ preferences, we argue that a firm’s insiders (managers and large blockholders) may seek to over- invest in CSR for their private benefit to the extent that doing so improves their reputations as good global citizens and has a “warm-glow” effect. We test this hypothesis by investigating the relation between firms’ CSR ratings and their ownership and capital structures. Employing a unique data set that categorizes the largest 3000 U.S. corporations as either socially responsible (SR) or socially irresponsible (SI), we find that on average, insiders’ ownership and leverage are negatively related to the firm’s social rating, while institutional ownership is uncorrelated with it. Assuming that higher CSR ratings is associated with higher CSR expenditure level, these results support our hypothesis that insiders induce firms to over-invest in CSR when they bear little of the cost of doing so.     

中国上市公司并购长期绩效研究

从2000~2004年发生于我国证券市场的208起上市公司并购情况来看,收购公司在并购后1~3年实现显著负的超常收益,即收购方发生了价值损失,遭受了显著的财富损失。同时,国有控股公司的并购绩效好于非国有公司,同城并购表现好于异域并购,多元化并购绩效差于同业并购,优势控股公司表现差于非优势控股公司。此外,与资产收购相比,股权收购的长期绩效表现更好。     

抑制代理成本提升公司价值了吗？——来自沪、深两市非金融类A股上市公司的经验证据

以沪、深两市非金融类A股上市公司2005～2009年的混合数据为研究对象，运用双变量回归（bivariate regression）、复回归（multiple regression）及协方差回归（ANACOVA）等计量方法，实证考察权益代理成本与公司价值间的关联性。研究结果表明，当权益代理成本降低时，我国上市公司的市场价值（托宾Q值）和财务业绩（ROA）均得到显著提高；且在引入内外部监督机制、管理层激励机制及股权结构特征三重约束后，二者的反向关联性仍维持稳定。此结论为代理成本理论增添了新的经验证据，即提升上市公司自身价值，保障投资者权益的有效途径之一就是降低代理成本。     

The effect of corporate governance on firm value and profitability: Time-series evidence from Turkey

We study the corporate governance practices of Turkish public firms from 2006 to 2012, relying on hand-collected data covering the vast majority of listed firms. We build a Turkey Corporate Governance Index, TCGI, composed of subindices for board structure, board procedure, disclosure, ownership, and shareholder rights. TCGI predicts higher market value (with firm fixed effects) and higher firm-level profitability with firm random effects. The principal subindex which predicts higher market value and profitability, and drives the results for TCGI as a whole, is disclosure subindex. We also study the determinants of firms' governance and find that most firm-specific factors have little effect on firms' governance choices.     

股权结构、股东保护与上市公司现金持有量

我国上市公司的治理结构一直是各方关注的焦点，尤其是股权结构、中小股东保护等问题。本文选取了2000年上市公司样本991个，定义了基于股权结构的股东保护变量，并在此基础上研究了股东保护与现金持有量之间的关系。研究结果表明，上市公司现金持有量差异较大，并且在股东保护较好的情况下，现金持有量相对较小，二者之间呈现负相走的关系。由于影响现金持有量的因素较多，我们选取了相当数量的影响因素作为控制变量，检验在其进入模型的情况下，对股东保护与现金持有量之间关系的影响；结果表明，股权结构影响下的股东保护与现金持有量具有负的线性相关性。     

Multidimensional brand equity and asymmetric risk

The authors investigate the extent to which central customer-based brand equity dimensions (Differentiation, Relevance, Esteem, Knowledge, and Energy) influence a firm’s systematic risk (i.e., beta) during both market upturns and downturns. The results demonstrate that aggregating upside and downside beta or different dimensions of brand equity masks the true associations which can be seen only in the disaggregate analyses. The authors find that Relevance and Knowledge play roles as stabilizers, showing negative relationships with both upside gains and downside risk, while Esteem plays the role of protector, showing a negative relationship with only downside losses and not influencing upside gains; Energy acts as a booster, being positively associated with a firm’s potential gains in a period of market growth without increasing the firm’s expected losses during a bad market. The positive relationship of Energy with aggregate risk could be misleading as it hides the beneficial effect of Energy as a booster. The authors also find that Relevance is the most important consideration when people make choices in bad market situations, while Energy becomes the most crucial deciding factor in good market situations. Taking advantage of the multidimensional constructs of brand equity while allowing for the asymmetrical characteristics of risk enables managers to capture the differential role of each brand equity dimension in influencing firm risks, which leads to more sophisticated strategic decisions regarding risk management. In addition to general brand strategy, the authors provide tailored brand strategies to firms from different industries or with different financial characteristics.     

Brand equity,warranty costs,and firm value

Warranty management is frequently discussed in the context of businesses’ ongoing efforts to reduce costs. However, how marketing can contribute to warranty cost reduction is empirically unclear. This opacity led to the current study, which focused on how warranty claim costs and abnormal warranty accrual costs mediate the relationship between brand equity and firm value—as well as the contingencies for the mediation. The result shows that brand equity reduces warranty claim rate and abnormal warranty accrual rate through which it increases firm value. In addition, product innovativeness decreases the association between brand equity and warranty claims and between brand equity and abnormal warranty accruals. As such, the findings revealed the roles of brand equity and product innovation in warranty cost reduction and thus suggested the need for managers to build and leverage their marketing resources when attempting to control warranty costs.     

Put Your Money Where Your Mouth Is: A Model of Certification with Informed Finance

We consider how funding from informed investors such as banks certifies the quality of the recipient firms to investors uninformed of it. We show that informed finance leads to full separation of firms’ quality types, with a larger quantity of it certifying a better quality. Moreover, the increase in the market value of the recipient firm is a convex, increasing function of the quantity of informed finance that it obtains. Lastly, firms with attribute X derive a greater value from the certification service of informed finance than those without it if the distribution of firms’ quality conditional on X is second‐order stochastically dominated by that conditional on its absence. The informed finance could be commercial bank loans or the purchase of a firm's equity preceding its IPO by renowned investment banks.     

Effects of personal taxes and equity issuing costs on the firm's investment decision

The existence of preferential taxes on capital gains relative to ordinary income is widely understood to create a systematic preference for internal rather than external equity financing. This preference is magnified by the existence of issuing costs on new equity. This paper develops a procedure to account for these market imperfections in terms of an adjusted net present value that directly adjusts a project's net present value calculated without regard to the imperfections. Once the correct adjustment procedure is developed, the practical implications of personal taxes and issuing costs on the firm's investment behavior clearly emerges. These market imperfections have created a discontinuous function for the firm in obtaining equity capital. Many rational wealth-maximizing firms are forced to make investment decisions in a situation similar to capital rationing as the separation theorem between investing and financing does not generally hold. This explanation of a potentially long-run need for capital rationing is consistent with otherwise perfect capital markets.     

Family control,accounting misstatements,and market reactions to restatements: Evidence from China

We examine the impact of family control on the likelihood of accounting misstatements and on market reactions to subsequent restatements. Using a matched-firm approach, we find that family control overall reduces the incidence of misstatements, consistent with the notion that controlling families have a greater concern for reputation than nonfamily blockholders. However, compared to nonfamily firm restatements, restatements announced by family-controlled firms trigger significantly more negative market reactions. We attribute the more negative market reactions to the greater loss in reputation and higher investor scepticism of the credibility of corporate insiders for family firms than for nonfamily firms following restatements.     

Strategic Interactions,Bargaining Power and Stability of Joint Venture in an Emerging Nation

We model strategic interaction between a domestic firm and a foreign firm involved in a joint venture, incorporating negotiations over equity shares and its implications for stability in the context of an emerging country. The foreign firm has superior technology, whereas the domestic firm has better local market knowledge. Modelling simultaneous innovation effort and bargaining power over equity share, we provide a rationale for the stability of the joint venture. We find that a certain level of technological knowledge can empower the bargaining power under certain parameter configurations and assumptions, such that the firms will negotiate to agree over their equity shares and maintain the joint venture. In this context, the stability of the joint venture is always an expected outcome. We have also shown that the domestic firm’s bargaining power and knowledge acquisition directly affect the domestic firm’s R&D effort and threaten the stability of the JV. We try to justify a probable situation where the firms may negotiate hard over equity shares but still maintain the joint venture.

     

法律环境、金字塔结构与家族企业的“掏空”行为

我国家族上市公司的最终控制人多数采用金字塔结构实现对上市公司的超额控制,现金流量权和控制权的分离程度较为严重。以2002-2004年家族上市公司为研究样本,本文实证考察了家族上市公司所处地区的法律环境及金字塔结构与"掏空"行为之间的关系。研究结果表明:控制性家族"掏空"上市公司的概率与其拥有的现金流量权显著负相关,与现金流量权和控制权的分离程度正相关;同时,较高的法治水平能够有效地遏制控制性家族的"掏空"行为。因此,建立一个有效的股东权利保护机制,同时完善家族上市公司的现金流量权和控制权结构,对于推进公司治理具有重要意义。     

The impact of mergers and acquisitions on brand equity: A structural analysis

An overlooked strategic benefit of mergers and acquisitions (M&As) is their impact on brand equity. M&As may affect consumer brand preferences, which in turn will affect a firm’s profit. We develop a structural model with a difference-in-differences specification to measure how M&As affect a firm’s profit through three mechanisms: brand equity, cost synergies, and product portfolios. We analyze Lenovo’s acquisition of IBM’s PC division in China’s PC market and find that the increase in brand equity contributed the most to increasing Lenovo’s profit, followed by cost synergies. To explore the generalizability of our modeling approach, we apply it to Geely’s acquisition of Volvo and also find that the gains in brand equity contributed the most to Geely’s profit increase.