Controlling shareholders' influence on acquisition decisions and value creation: An empirical study from China

Abstract

Controlling shareholders are capable of influencing major decisions in firms, and their existence may give rise to principal‐to‐principal conflict as minority shareholders may feel sidelined during decision‐making. This study employs a proxy (the highest control right), which takes into consideration both direct and indirect controls to investigate the excess cash usage preference of controlling shareholders. Again, the study investigates how the background characteristics of different controlling shareholders influence their underlying firms' acquisition decisions. With observations from 13,293 Chinese firms and the random effect probit model, we find that controlling shareholders are more likely to influence the use of excess cash into acquisition activities other than to retain such cash in the firm possibly for the payment of a dividend. Furthermore, we observe that the traditional way of classifying firms into either private or state is misleading, and the use of excess cash is influenced by the unique characteristics of the true owner. We recommend that on‐going reforms in China should consider encouraging more institutional investors to acquire shares as this will reduce the powers of controlling owners.

Investment decisions under uncertainty: Corporate venture capital as a real option

“…First, we perform a multivariate probit regression to analyse the event in which corporate investors fund companies. Having a dichotomous dependent variable, we follow Opoku‐Mensah and Yin (2021) in using a multivariate probit model. Khan et al (2021) recommend this as an appropriate approach due to the correlation between independent variables, indicating the nature of the normal distribution of the data.…”

Conflicts Between Parent Company and Non-Controlling Shareholders in Stakeholder-Oriented Corporate Governance: Evidence From Japan

“…PP conflicts may arise when controlling shareholders maximize their private benefits by exploiting the wealth of minority shareholders. Scholars have suggested that controlling shareholders maximize private benefits through dividend cuts, excessive cash holdings, tax avoidance, inefficient investments, and related-party transactions (Bauer et al, 2020;Faccio et al, 2001;Huyghebaert & Wang, 2012;Jebran et al, 2019;Jiang et al, 2015Jiang et al, , 2018Opoku-Mensah & Yin, 2021). Additionally, PP conflicts may result in additional agency costs, which may reduce the performance and value of the company (Cronqvist & Nilsson, 2003;Ferris et al, 2003;Morck et al, 2005;Sauerwald et al, 2019).…”

Does the Chinese labour force make sufficient efforts? Empirical evidence using non‐parametric analysis

“…Hence, our incentive is characterized as a typically used progressive incentive, which is more applicable in the Chinese labour market than a regressive one. Opoku‐Mensah and Yin (2021) find that controlling shareholders in the Chinese listed firms are more likely to influence the use of excess cash into acquisition activities other than to retain such cash in the firm possibly for the payment of a dividend. Because of the under‐developed financial market, the controlling shareholders can apply progressive incentive.…”