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Do Controlling Shareholders Enhance Corporate Value?

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  • Yin-Hua Yeh

    (Graduate Institute of Finance of Fu-Jen Catholic University, Taiwan.)

Abstract

In this study we contribute to the literature by re-examining the effect of control and ownership of controlling shareholder on corporate valuation, and determining which particular mechanism for enhancing voting rights would achieve the negative entrenchment effect. We take Taiwan listed companies, where the ownership concentration structure is similar to that in East Asian countries, as our sample. We find the corporate value is higher when the largest shareholder owns more cash flow rights (ownership), supporting the positive incentive effect. The negative entrenchment effect becomes evident when the largest shareholder's cash flow rights are less than the median. Therefore, if the cash flow rights owned by the largest shareholder are greater than the median, the positive incentive effect will restrain the negative entrenchment effect. In family-controlled companies, the corporate value will conspicuously decrease if the largest shareholder enhances their voting rights through cross-shareholding, deeply participates in management or controls most board of directors. Copyright Blackwell Publishing Ltd 2005.

Suggested Citation

  • Yin-Hua Yeh, 2005. "Do Controlling Shareholders Enhance Corporate Value?," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(2), pages 313-325, March.
  • Handle: RePEc:bla:corgov:v:13:y:2005:i:2:p:313-325
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    Citations

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    Cited by:

    1. Iuliana Oana MIHAI & Cosmin MIHAI, 2012. "Ultimate Owner and Firm Performance - Evidence from Romanian Mining and Quarrying Listed Firms," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 2, pages 75-82.
    2. Lin, Wen-Ting & Liu, Yunshi, 2012. "Successor characteristics, organisational slack, and change in the degree of firm internationalisation," International Business Review, Elsevier, vol. 21(1), pages 89-101.
    3. Dendi Ramdani & Arjen Witteloostuijn, 2012. "The Shareholder–Manager Relationship and Its Impact on the Likelihood of Firm Bribery," Journal of Business Ethics, Springer, vol. 108(4), pages 495-507, July.
    4. Ming-Chang Wang & Yung-Chuan Lee, 2012. "The Signaling Effect of Independent Director Appointments," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(5), pages 25-47, September.
    5. Shu-hui Lin & Shing-yang Hu, 2007. "A Family Member or Professional Management? The Choice of a CEO and Its Impact on Performance," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1348-1362, November.
    6. Chi, Wuchun & Wang, Chenchin, 2010. "Accounting conservatism in a setting of Information Asymmetry between majority and minority shareholders," The International Journal of Accounting, Elsevier, vol. 45(4), pages 465-489, December.
    7. Hsiao, Shu-Hua, 2014. "PTE, innovation capital and firm value interactions in the biotech medical industry," Journal of Business Research, Elsevier, vol. 67(12), pages 2636-2644.
    8. Chia-Ling Chao & Shwu-Min Horng, 2013. "Asset write-offs discretion and accruals management in Taiwan: the role of corporate governance," Review of Quantitative Finance and Accounting, Springer, vol. 40(1), pages 41-74, January.
    9. repec:eee:quaeco:v:64:y:2017:i:c:p:130-140 is not listed on IDEAS
    10. Balling, Morten & Holm, Claus & Poulsen, Thomas, 2006. "Corporate governance ratings as a means to reduce asymmetric information," Financial Reporting Research Group Working Papers R-2005-04, University of Aarhus, Aarhus School of Business, Department of Business Studies.
    11. Ming-Chang Wang & Yung-Chuan Lee, 2012. "The Signaling Effect of Independent Director Appointments," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(5), pages 25-47, September.
    12. Wu, Soushan & Chen, Chin-Mei & Lee, Pei-Ching, 2016. "Independent directors and earnings management: The moderating effects of controlling shareholders and the divergence of cash-flow and control rights," The North American Journal of Economics and Finance, Elsevier, vol. 35(C), pages 153-165.
    13. Mauricio Jara-Bertin & Félix J. López-Iturriaga & Ãscar López-de-Foronda, 2008. "The Contest to the Control in European Family Firms: How Other Shareholders Affect Firm Value," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(3), pages 146-159, May.
    14. Chen, Chao-Jung & Hsu, Chung-Yuan & Chen, Yu-Lin, 2014. "The impact of family control on the top management compensation mix and incentive orientation," International Review of Economics & Finance, Elsevier, vol. 32(C), pages 29-46.
    15. Richard A. Johnson & Karen Schnatterly & Scott G. Johnson & Shih-Chi Chiu, 2010. "Institutional Investors and Institutional Environment: A Comparative Analysis and Review," Journal of Management Studies, Wiley Blackwell, vol. 47(s2), pages 1590-1613, December.
    16. Di Cai & Jin-hui Luo & Di-fang Wan, 2012. "Family CEOs: Do they benefit firm performance in China?," Asia Pacific Journal of Management, Springer, vol. 29(4), pages 923-947, December.
    17. Jin-Hui Luo & Heng Liu, 2014. "Family-Concentrated Ownership in Chinese PLCs: Does Ownership Concentration Always Enhance Corporate Value?," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 2(1), pages 1-19, February.
    18. Hsien-Chang Kuo & Lie-Huey Wang, 2015. "Do Network Linkages affect Financial Leverage ? A Group Governance Perspective," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 50-69, December.
    19. Kuan, Tsung-Han & Li, Chu-Shiu & Liu, Chwen-Chi, 2012. "Corporate governance and cash holdings: A quantile regression approach," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 303-314.

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