Ownership concentration and investment sensitivity to market valuation

Tayem, Ghada

doi:10.22495/cocv13i1c10p9

Cited by 5 publications

(14 citation statements)

References 43 publications

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“…Given our data on the shareholders of mines, we compute the Herfindahl–Hirschman index (HHI) of OC to capture the degree to which a mine has concentrated or diluted ownership (we call this variable ownership concentration ). As discussed above, previous research (e.g., Filatotchev et al, 2001; Tayem, 2015) has shown that there is a relationship between OC and investment behavior. To determine a measure between 0 and 1, we scale this variable by dividing it by 10,000 before running our regression models.…”

Section: Datamentioning

confidence: 78%

“…The link between firm ownership and investments is an important research question. Ownership structure has been shown to be relevant for the responsiveness of investments to demand shocks (Maksimovic et al, 2017; Tayem, 2015). For instance, by mitigating or exacerbating agency problems (e.g., Bebchuk et al, 2015; Shleifer & Vishny, 1994), OC may impact investment–cash flow sensitivities.…”

Section: Theory and Hypothesesmentioning

confidence: 99%

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The effect of ownership structure on investment decisions under exogenous shocks

Ramirez

Tarziján

Lagos

2022

Corporate Governance

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Research Question/Issue We assess how ownership concentration influences the sensitivities of expansion investments and maintenance investments to changes in a firm's cash flow. We find the causal effect by exploiting the exogenous variation in the price of a firm's product. We also evaluate whether state versus private ownership affects the impact of ownership concentration on investment–cash flow sensitivities. Research Findings/Insights Using detailed data from 134 major copper mines operating in 29 countries over a 17‐year period, we show that a more concentrated ownership increases the sensitivity of expansion investments to changes in a firm's cash flow, while we do not detect a significant effect for maintenance investments. We also find that state ownership negatively moderates the effects of ownership concentration on the expansion investment–cash flow sensitivity. Theoretical/Academic Implications The findings improve our understanding of ownership structures and show the nuances of these structures when different ownership features are combined in the assessment of investment sensitivities. Practitioner/Policy Implications The asymmetric effects of ownership structures on different investment sensitivities call for a more fine‐grained analysis of incentives, benchmarking, and information disclosure policies. This issue is especially relevant in state‐owned enterprises (SOEs) and in firms with a low ownership concentration.

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Section: Datamentioning

confidence: 78%

Section: Theory and Hypothesesmentioning

confidence: 99%

The effect of ownership structure on investment decisions under exogenous shocks

Ramirez

Tarziján

Lagos

2022

Corporate Governance

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“…Jordanian firms listed on Amman Stock Exchange (ASE) are mostly characterized by highly concentrated ownership structures and dominance of duality (Tayem, 2015). In addition, large owners assume managerial, which means that the largest shareholder usually performs the duties of the Chairman and/or the CEO.…”

Section: Institutional Environment and Corporate Ownership In Jordanmentioning

confidence: 99%

“…In addition, large owners assume managerial, which means that the largest shareholder usually performs the duties of the Chairman and/or the CEO. Therefore, in the case of Jordan, the largest shareholders become insiders rather than monitors (Tayem, 2015). Controlling owners have stronger incentives and greater power to extract private benefits for themselves in the form of higher compensations (Cheung et al, 2005).…”

Section: Institutional Environment and Corporate Ownership In Jordanmentioning

confidence: 99%

The Determinants of CEO Cash Compensation in Non-Financial Listed Firms: Evidence from Jordan

Al-Mughrabi¹

2022

IJEF

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Compensation paid to top executive managers is one of the sensitive areas in modern corporate finance. The objective of this paper is to investigate the determinants of the Chief Executive Officer and/or the Chairman of the board of directors’ cash compensation. It examines mainly the linkage between ownership concentration, role duality, financial performance, among other variables, and executives’ cash compensation for a sample of 81 Jordanian listed firms during the period 2010-2013. By applying fixed and random effects estimates, I find conclusive evidence that dual CEOs receive higher cash compensation, compared to those who do not hold the position of Chairman. In addition, CEOs in larger firms are more compensated than others in smaller ones. The results provided evidence that a firm’s leverage does not affect its CEO’s cash compensation, however, the firm’s industry identity plays some role in determining its executive pay, but not its Chairman of the board. The analysis fails to link CEO cash compensation to the firm’s financial performance and ownership structure, implying that neither compensation contracts nor concentrated ownership structures can alleviate the agency problem or reduce agency costs in Jordanian firms. These results do not diverge much when the dependent variable is the Chairman of the board of directors’ cash compensation. Overall, Jordanian CEOs are unjustifiably over-compensated as they fail to prove their worth, in light of such lamentable performance of the Jordanian non-financial listed firms, which raises questions about executives’ compensations determining mechanism, and the process of hiring CEOs in the first place.

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“…There is a priori cause to doubt a regular manipulation of earnings in Jordan, due to the nature of ownership structure of firms listed on Amman Stock Exchange (ASE). Jordanian listed firms are mostly characterized by highly concentrated ownership structures, which allows shareholders with large ownership stake to exercise control over the firm (Tayem, 2015). Therefore, managers of such firms have stronger incentives and greater power to act opportunistically for personal gain, and tend to get involved in unprofitable projects, over investments and misuse the funds (Jensen, 1986).…”

Section: Institutional Environment and Corporate Ownership In Jordanmentioning

confidence: 99%

The Impact of Financial Crisis on Earnings Management in Nonfinancial Listed Firms: Evidence from Jordan

Al-Mughrabi¹

2020

IJBM

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This paper studies earnings management in Jordan during the global financial crisis. It addresses mainly the question of whether or not financial crisis has an impact on discretionary accruals, using the modified Jones model (1995) for estimating discretionary accruals. By applying Ordinary Least Squares regression model on a sample of 71 nonfinancial listed firms during the period of 2005-2012, I find a conclusive evidence that Jordanian nonfinancial listed firms did not engage in a greater level of earnings management during the financial crisis period. In addition, larger firms are less involved in earnings management practices compared to smaller firms. Moreover, the results suggest a negative significant impact of operating cash flow on discretionary accruals, while it fails to connect current year losses with discretionary accruals. However, the findings indicate that firm’s leverage is positively and significantly associated with discretionary accruals. Overall, the empirical results provided evidence that earnings management practices in Jordanian nonfinancial sectors are relatively small, even smaller in services sector, which raise questions about the validity of the modified Jones model and whether or not different models (such as Deangelo, 1986) should be used in future studies regarding earnings management.

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Ownership concentration and investment sensitivity to market valuation

Cited by 5 publications

References 43 publications

The effect of ownership structure on investment decisions under exogenous shocks

The effect of ownership structure on investment decisions under exogenous shocks

The Determinants of CEO Cash Compensation in Non-Financial Listed Firms: Evidence from Jordan

The Impact of Financial Crisis on Earnings Management in Nonfinancial Listed Firms: Evidence from Jordan

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