Length of Chain in Pyramidal Firms towards Expropriation of Minority Interest

Abstract

It is documented that there is a large divergence of cash flow rights and control rights in ownership concentrated corporations whereby power lies in the hands of the ultimate controlling shareholder especially for Malaysian pyramidal firms. The divergence of these two rights via length of chain leads to the expropriation of minority shareholders interest. Thus, this study aims to examine the factors influencing the length of chain of Malaysian pyramidal firms implying expropriation of minority interest. This study hypothesizes that the distance separating the ultimate controlling shareholder from their affiliated firms is positively related to the presence of eventual negative shocks and vice-versa. Applying the Attig Model and Panel Generalised Least Square (GLS) estimation on Malaysian pyramidal firms between 1990 to 2010 as the underlying statistical test, the results show that there is association between the length of chain separating ultimate controlling shareholder from the affiliated groups and the entrenchment effect. Factors influencing the length of chain such as risk, cash, size, TobinQ, duality, financial institution and liquidity posit significant results and consistent with the entrenchment effect. Future research needs to highlight on identifying the heterogeneous factors that improve the generalizability of research.