Najah Attig

Do Multiple Large Shareholders Play a Corporate Governance Role? Evidence from East Asia

Abstract We examine the governance role of multiple large shareholder structures (MLSS) to determine their valuation effects in a sample of 1,252 publicly traded firms from nine East Asian economies. We find that the presence, number, and size of multiple large shareholders are associated with a significant valuation premium. Our results also show that the identity of MLSS influences corporate value and that the valuation effects of MLSS are more pronounced in firms with greater agency costs. Our results imply that MLSS play a valuable monitoring role in curbing the diversion of corporate resources. Copyright (c) 2009 The Southern Finance Association and the Southwestern Finance Association.

Institutional Investment Horizon and Investment-Cash Flow Sensitivity

This paper examines the relevance of institutional investors’ investment horizon, as reflected in the response of firm investment to internal cash flows. We argue that institutional investors with longer investment horizons have greater incentives and efficiencies to engage in effective monitoring. This improved monitoring mitigates asymmetric information and agency problems, and in turn reduces the wedge between the costs of internal and external funds. As a result, the sensitivity of firms’ investment outlays to internal cash flows decreases in the presence of institutional investors with long-term investment horizons. Using a sample of 8402 US firms over the period 1981–2008, we provide empirical evidence consistent with these arguments.

Institutional Investment Horizons and the Cost of Equity Capital

We examine the influence of institutional investors’ investment horizons on a firm’s cost of equity. We argue that the cost of equity will decrease in the presence of institutional investors with longer-term investment horizons due to improved monitoring and information quality. Our empirical results demonstrate that the cost of equity declines in the presence of institutional investors with long-term investment horizons, all else remaining equal. Our results indicate also that the monitoring role of long-term institutional investors is more pronounced for firms with higher agency problems (poorly governed firms). Overall, our evidence suggests that when considering the influence of institutional investors, it is critical to account for institutional heterogeneity, which gives rise to new directions for future research.

On the Determinants of Pyramidal Ownership: Evidence on Dilution of Minority Interests

We investigate the determinants, costs and benefits of corporate affiliation to pyramidal holdings. We find that there is a mismatch between cash flow rights and voting rights in firms affiliated to pyramidal holdings, and that corporate policies reflect cash distribution preferences of the ultimate owners. We also find a permanent depressive effect of pyramidal ownership on corporate value. This finding is consistent with the hypothesis that the layers of equity holdings within the pyramidal holding contribute to form an impervious veil behind which ultimate owners engage in expropriating behavior. Our investigation of affiliated firms suggests that ultimate owners, mostly families, are adept at combining their cash flow rights, voting power, and distance from affiliates in a way that minimizes sensitivity to negative events and maximizes sensitivity to positive events.

The Global Financial Crisis, Family Control and Dividend Policy

Using newly collected data on the ultimate ownership structure of publicly traded firms in nine East Asian economies, we find that family control is negatively related to the dividend payout ratio. Family firms are less (more) likely to increase (omit) dividends than non-family firms. These negative associations between family firms and dividend policy are more pronounced during the recent global financial crisis, suggesting that controlling families have incentives to expropriate more firm resources during crises than in normal times.

International Diversification and Corporate Social Responsibility

Using a large sample of 3,040 U.S. firms and 16,606 firm-year observations over the 1991-2010 period, we find strong evidence that firm internationalization is positively related to the firm’s corporate social responsibility (CSR) rating. This finding persists when we use alternative estimation methods, samples, and proxies for internationalization and when we address endogeneity concerns. Next, we find that firm characteristics such as size, profitability, growth opportunities, R&D, and advertising expenses condition the link between internationalization and CSR. We finally provide novel evidence that firms with extensive foreign subsidiaries in countries with well-functioning political and legal institutions have better CSR ratings.

Institutional Investment Horizon and Firm Credit Ratings

Purpose – Study the impact of the heterogeneity of institutional investors, evident in their investment horizon, on firm credit ratings. Methodology/approach – Use a large sample of U.S. firms over the period from 1985 to 2006 (20,670 U.S. firm-year observations) to empirically investigate the relationship between institutional investment horizon and firm credit ratings. Test whether institutional investors with long-term investment horizon are associated with important monitoring and informational roles and thus higher credit ratings. Findings – Stable shareholdings and relationship investing of institutional investors contribute to their monitoring and informational roles and result in higher firm credit ratings. Namely, ownership stakes of long-term institutional investors are associated with higher firm credit ratings than those of short-term institutional investors. In addition, the predominance and number of institutional investors with a long-term investment horizon affect firms agency costs and information quality. Social implications – Institutional monitoring incentives seem to be susceptible to the heterogeneity of institutional investors. The results point to the benefits of the long-term investment horizon of institutional investors (beyond their shareholdings) that seem to be associated with more efficient monitoring and thus reduced managerial myopia and opportunism. Originality/value of the chapter – This is the first work to provide evidence on the extent to which the heterogeneity of institutional investors, evident in their investment horizon, alters firms credit ratings.

Are Insiders Equal? Evidence from Earnings Management in Closely Held East Asian Firms

In analyzing newly collected data on the ultimate ownership structure of publicly traded firms in nine East Asian economies, we contribute to international accounting research by providing evidence on earnings management in insider-controlled firms in this region. We find that family-controlled firms engage in less (more) accrual-based (real) earnings management than other insider-controlled firms. Our analysis suggests that controlling families, unlike other types of ultimate owners, tend to substitute real earnings management for accrual-based earnings management. To help empirically clarify the role that two incentives (entrenchment versus signaling) play in driving the substitution between real and accruals-based earnings management, we examine their valuation impact and find that both types negatively affect the future valuation of family firms. In another set of results consistent with expectations, we document that country-level investor protection and firm external financing demand shape the practice of earnings management in family-controlled firms.