Corporate control and firm value: The bright side of business groups
We analyze the effect of pyramidal ownership levels on the performance of Chilean firms by considering the
impact of business groups. Using an unbalanced panel of 1018 firm-year observations from 88 quoted firms for
the period from 2000 to 2014, we find that higher levels of separation between ownership rights and control
rights decrease performance in family firms that are not part of a business group. This result suggests that too
much separation of ownership and control rights in family firms can result in deviant incentives for family
members to extract private benefits. However, we also find that group affiliation reduces the negative impact of
the separation of ownership and control rights in family firms, which corroborates the bright side of internal
capital markets for these firms.
This chapter and the following one are devoted to independent legal entities that constitute united companies and are known as business groups (BGs) or holding company groups. In modern economic literature, BGs are defined as “a set of firms which, though legally independent, are bound together by a constellation of formal and informal ties and are accustomed to taking coordinated action” (Khanna & Rivkin, 2001, pp. 47-48). Russian law defines a parent company and its subsidiary, which together constitute a holding company group, as a pair of agents, one of which, namely, the parent company, has sufficient authority to determine the decisions of another based on ownership rights or any other type of control rights. In this respect, both terms, BGs and holding company groups, are synonymous. In Russia, the term “business group” usually applies to legally independent entities under the same control that were historically independent businesses and have experience acting independently. BGs are sometimes considered to be newly established integrations that occurred after privatization. In this book, a business group is defined as a set of legally independent entities joined by ownership rights. The set of entities (enterprises) is under control of the ultimate owner (or small groups of interrelated ultimate owners) or parent company. No distinction is generally made between BGs founded during the Soviet times and those established in mergers during the economic upturn that started in 1999 after the completion of a mass movement of privatization.
Resume of the 17th April Scientific Conference on Economic and Social Development
We investigate the cross section momentum effect in the Japanese stock market over the period January 1997 to December 2013, sub-periods before August 2008 and during the crisis September2008–2009. From previous studies, it follows that the Japanese market is the exception to the findings on developed capital markets (momentum effect does not occur or is weak). Our study highlights the limitation of standard notions; we document the conditional nature of momentum and identify the characteristics of companies and their stocks and market states, allowing investors to earn positive momentum profit in the Japanese market (the statistically significant positive monthly return of zero cost portfolios is not less than 1%). It is shown that investors should take into account the seasonal pattern (for the Japanese stocks this revealed two months when we do not recommend taking investment activity) to increase portfolio profits. We explain the results from the specifics of the Japanese financial and governance systems, the ownership structure of listed Japanese firms and socio-cultural factors.
We analyze the effect of two types of corporate diversification (business diversification and ownership diversification) on the market value of the Chilean firms. For a sample of 83 nonfinancial firms listed on the Santiago Stock Market from 2005 to 2013, we find a discount for both business and ownership diversification, which is consistent with that reported for other economic or institutional settings. Second, we find that the business diversification discount is related to the ownership structure and is due to the excess of the largest shareholders’ control rights. Third, we find that the ownership diversification discount becomes a premium when the ownership diversification enables the control of the affiliated firms. This effect can be explained by the improvement of internal capital markets that allows overcoming the limitations of Chilean external capital markets.
We study the relationship between SMS (small medium size) firm ownership structure and obstacle to finance. The empirical research considers both the concentration of the company's ownership (controlling owner) and the presence of foreign participants in the equity capital. Our aim is to identify those determinants of financial markets (bond market development), legal institutions and firms characteristics in the transition economies of the post soviet countries that can be considered as barriers to attracting financial resources. This paper sheds light on large shareholders’ influence on obstacle to finance.