Ownership structures and effects of related lending and loan guarantees on firm performance in business groups

Abstract

This study identifies a sample of listed Indian business group firms, which exhibit an increasing trend in leverage, related lending and loan guarantees. Business groups in India, primarily adopt pyramidal structure in which decision making is done through control rights approach. The paper examines the ownership structures in business groups and studies the effects of related lending and loan guarantees on firm performance in such business groups through a panel data regression with fixed effects. The regression results suggest that lending and loan guarantees to related parties affect the operating performance of group firms positively. The relationship has been found to be significant for most of the categories of business groups studied for the two measures of firm performance, namely gross profit to asset ratio and return on assets. However, their effect on market value is found to be negative, leading to an inference that such deals are taken adversely by the market.

Transações com Partes Relacionadas em empresas com estrutura piramidal: uma comparação dos fatores explicativos nas controladoras e coligadas

“…Esses resultados confirmam a hipótese 1 do trabalho e corroboram com a literatura (Kang et al, 2014;Maheshwari & Gupta, 2018), demonstrando que as TPRs poderão ser um canal de expropriação a partir dos desvios de direitos. De forma prática, a organização das empresas em estruturas piramidais pode facilitar a utilização de TPRs ao longo da cadeia de subordinação entre controladoras/controladas.…”

“…Partindo-se desse contexto, foi elaborada a seguinte hipótese de pesquisa: Nesse contexto, a relação entre TPRs e estruturas piramidais está na opção de os acionistas controladores utilizarem as transações para obter benefícios privados ao longo da cadeia de propriedade. Com isso, a estrutura piramidal pode ser um incentivo às TPRs, havendo uma associação positiva entre ambos (Kang et al, 2014;Maheshwari & Gupta, 2018).…”

“…De forma geral, a relação entre TPRs e desempenho tem demonstrado que há um efeito negativo dessas operações (Wang et al, 2019), já que as companhias poderão ter incentivos para ganhos oportunistas (Kang et al, 2014), reduzindo seu desempenho. No entanto, sob a ótica das transações eficientes, as TPRs poderão reduzir custos e resultar em crescimento financeiro (Maheshwari & Gupta, 2018;Wang et al, 2019;Wong et al, 2015), o que justifica os achados nesta pesquisa.…”

Determinants of RPTs in the Brazilian stock market: analysis of control-ownership wedge, firm value, performance and corporate governance

“…This concentration of control rights gives the family the option of using private benefits by transferring resources along the chain of ownership (Kim 2010). Opting for a pyramid scheme can be an incentive to RPTs (Kang et al 2014;Maheshwari and Gupta 2018).…”

Corporate Governance, Bank Performance and Value:-Evidence from Pakistan

“…The firms in concentrated ownership are managed by large shareholders and owners and managers are alike hence the problems of the agency are likely to be limited Maheshwari & Gupta (Maheshwari & Gupta, 2018). However, a high concentration of ownership gives discretionary powers to larger shareholders due to which conflict of interest could arise with the minority shareholders (Johnson et al, 2000;Oradi et al, 2020;Russino et al, 2019).…”