Ownership Structure, Fraud, and Corporate Governance

Goldberg, Stephen R.; Danko, Dori; Kessler, Lara

doi:10.1002/jcaf.22120

Cited by 10 publications

(8 citation statements)

References 10 publications

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“…Prior research highlights the role played by the firm control structure on corporate governance, specifically the identity of controlling blockholders (Connelly et al, 2010;Filatotchev and Wright, 2011;Shleifer and Vishny, 1997). The findings that the identity of ultimate controlling shareholders affects corporate governance complement prior results that examine other aspects of ownership structure (Brandã o and Cris ostomo, 2015;Bozec and Bozec, 2007;Henry, 2010;Goldberg et al, 2016;Singh and Davidson, 2003).…”

Section: Introductionmentioning

confidence: 68%

The ultimate controlling owner and corporate governance in Brazil

Crisóstomo

Brandão

2019

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Purpose High ownership concentration makes controlling blockholders powerful enough to use private benefits of control and able to shape the corporate governance system to favor their own interests. This paper aims to examine the effect of the nature of the ultimate firm owner on the quality of corporate governance in Brazil. Design/methodology/approach Econometric models are estimated to assess whether the nature of the ultimate controlling shareholder affects the quality of the corporate governance system. Models are estimated using panel data methodology with coefficients estimated by the generalized method of moments system estimator. Findings The results show that the absence of a controlling shareholder has a positive effect on corporate governance, whereas the presence of a controlling blockholder, or a shareholder agreement among a few large shareholders, has a negative effect. This adverse effect holds when the controlling blockholder is a family or another firm. The findings are in line with the expropriation effect given that weaker corporate governance system facilitates controlling shareholders’ ability to extract private benefits of control. The findings also give support to the substitution effect as powerful blockholders take on the management monitoring function by weakening the board. Originality value Following important previous literature, the study investigates the effect of the nature of large controlling shareholders on the adoption of good corporate governance practices. The work provides additional evidence on the effect of the nature of large controlling shareholders on the quality of the corporate governance system in Brazil, taking into account the main kinds of controlling blockholders present in that market. The findings give support to both the expropriation and substitution hypotheses highlighting the presence of the principal-principal agency model in an important emerging market, Brazil.

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Section: Introductionmentioning

confidence: 68%

The ultimate controlling owner and corporate governance in Brazil

Crisóstomo

Brandão

2019

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“…The overall empirical evidence on the negative role played by related party transactions in expropriation of shareholders wealth coupled with the recent corporate financial scandals such as Enron creates fertile ground for public misperception of these transactions and leads to regulatory sanctions to protect shareholders wealth (Pizzo, 2013). However, certain scholars argue that these regulations may be insufficient to guard company resources and call for additional advanced enforcement measures such as specialized courts, anti-tunneling social norms (Enriques, 2015) and effective corporate governance mechanisms to reduce information asymmetry and agency costs (Goldberg et al , 2016).…”

Section: Background and Hypothesis Developmentmentioning

confidence: 99%

IFRS related party transactions disclosure and firm valuation in the United Arab Emirates emerging market

ElKelish

2017

JAEE

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Purpose The purpose of this paper is to investigate the relationship between related party transactions disclosure (RPTD) and firm valuation in the United Arab Emirates (UAE), an emerging market. Design/methodology/approach Data on study variables were obtained manually from the published financial statements of all listed companies in the stock market during the period 2008-2012. Panel regression analysis models with fixed and random effects were used to ensure reliability of results. Several robustness checks were undertaken on the study outcomes. Findings The empirical results show that there is a significant negative relationship between RPTD and firm valuation in the UAE. RPTDs for subsidiaries and associates have the most damaging impact on firm valuation. Other control variables such as corporate governance disclosure (CGD), debt to equity, asset tangibility and sales growth show significant impact on firm valuation. Research limitations/implications The potential difference in the understanding of what constitutes “related party” across companies may affect the extent of related party disclosure across companies. Furthermore, some variables are not controlled for such as ownership structure and cultural values. Practical implications This paper provides useful practical guidelines for regulatory agencies, corporate managers and other stakeholders for improving the financial reporting system. Originality/value RPTD was measured according to the International Financial Reporting Standards (IAS 24) standards. Furthermore, the impact of new control variables such as CGD and product market competition was tested for financial and non-financial sectors.

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“…Monitoring by shareholders can deter financial misconduct. Research reveals that firms with more concentrated ownership are less inclined to misconduct because their controlling shareholders hold large numbers of shares, giving them enhanced power to monitor managers (Chen et al, 2006; Goldberg et al, 2016). Scholars also suggest that institutional ownership can reduce the likelihood of financial misconduct via external monitoring by institutional investors (Dharwadkar et al, 2008).…”

Section: Conceptual Developmentmentioning

confidence: 99%

Excess control rights in family firms: A socioemotional wealth perspective

Shi

Connelly

2022

Corporate Governance

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Research Question/Issue: This study attempts to uncover a hidden benefit of shareholders' excess control rights in family firms by examining whether excess control rights can reduce the likelihood of financial misconduct in family firms, compared with nonfamily firms.Research Findings/Insights: We argue that excess control rights are especially useful for family-owned firms, compared with firms with other types of ownership, in preventing financial misconduct. They afford family owners the ability to guard against misconduct that can damage the founder's legacy and reduce the family's socioemotional wealth. We also investigate two boundary conditions, the presence of a family member as the board chair and the family's public visibility, that validate our proposed theoretical mechanism. In these scenarios, the family owner's socioemotional wealth is particularly high and could be impacted severely by misconduct.Results from a sample of 2516 publicly traded firms in China support our theory.Theoretical/Academic Implications: Our study challenges traditional agency theory about excess control rights by exploring the potential of excess control rights to mitigate principal-agent problems and prevent financial misconduct in family firms.

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Ownership Structure, Fraud, and Corporate Governance

Cited by 10 publications

References 10 publications

The ultimate controlling owner and corporate governance in Brazil

The ultimate controlling owner and corporate governance in Brazil

IFRS related party transactions disclosure and firm valuation in the United Arab Emirates emerging market

Excess control rights in family firms: A socioemotional wealth perspective

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