Too few dividends? Groups' tunneling through chair and board compensation

Urzúa, I Francisco

doi:10.1016/j.jcorpfin.2008.11.002

Cited by 36 publications

(10 citation statements)

References 20 publications

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“…Prior literature has shown that minority shareholders’ weak rights result in possible expropriation through a lower dividend payout rate (Adjaoud & Ben‐Amar, ; Faccio, Lang, & Young, ; Pindado, Requejo, & Torre, ; Urzúa, ; Wang, ). Consistent with this approach, if the dominant shareholder could use this leveraged voting power to extract private benefits from other shareholders, it would mean that the dominant shareholder's enhanced power can lead to keeping more resources under his/her discretionary control.…”

Section: Theoretical Backgroundmentioning

confidence: 99%

Do Shareholder Coalitions Modify the Dominant Owner's Control? The Impact on Dividend Policy

López‐Iturriaga

Martín

2015

Corporate Governance

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Manuscript Type: EmpiricalResearch Question: We examine the effect of shareholder coalitions on the corporate payout policy in Spain, a context characterized by the presence of dominant shareholders. Research Findings: Our results show that shareholder coalitions affect payout policy negatively (both for dividends and shares repurchases). We also find that the divergence between the voting rights involved in the coalition and the dominant owner's voting rights is negatively related to dividends. Theoretical/Academic Implications: Our findings suggest that shareholder coalitions can serve as an instrument for the dominant shareholders to extract private benefits. Our results also mean that the dominant owner uses the coalition as a mechanism to amplify his or her control over the firm and reduce the cost of expropriation. Practitioner/Policy Implications: Regulators should pay attention to the double role of shareholder agreements, as these coalitions could become an entrenchment mechanism for dominant shareholders. Our results highlight the importance of considering shareholder agreements when investors analyze the corporate dividend policy.

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Section: Theoretical Backgroundmentioning

confidence: 99%

Do Shareholder Coalitions Modify the Dominant Owner's Control? The Impact on Dividend Policy

López‐Iturriaga

Martín

2015

Corporate Governance

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“…Data availability makes Chilean business groups a frequent focus of study in relation to their performance (Khanna and Palepu, ), their organization and structure (Khanna and Palepu, 1999; Lefort and Walker, ), interlocking and stock returns (Khanna and Thomas, ), internal capital markets (Buchuk et al., ), and board compensation (Urzúa, ).…”

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confidence: 99%

Do Business Groups Change With Market Development?

Larraín

Urzúa

2016

Economics Manag Strategy

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Khanna and Yafeh hypothesize that business groups should be more common in economies with less developed markets and institutions. We test the time-series version of this hypothesis by looking at changes in Chilean groups over 20 years (1990Chilean groups over 20 years ( -2009Business groups are prevalent in emerging markets (e.g., Brazil, India, China, South Korea) and developed markets (e.g., Italy, Sweden). Yet, despite their extended presence, we know little about why they form and how they evolve. Khanna and Yafeh 2007 put forward several hypotheses in this respect. One hypothesis is that business groups should be more common in economies with less developed markets and institutions. Basically, business groups act as substitutes for capital, goods, or labor markets when frictions are severe. A first approach to test this idea is to make cross-country comparisons on the prevalence of business groups as a function of variables that proxy for market development. A second approach is to use within-country, time-series data to see whether business groups correlate with market dynamics. The time series approach has the advantage of controlling for country unobservables that blur cross-country comparisons.In this paper we contribute to the literature on business groups precisely by performing a country-study in the style of the second approach described above.

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“…Kato, Kim, and Lee (2007) study the pay–performance sensitivity of Korean business group firms. Urzúa (2009) studies the influence of the controller's cash flow rights on board compensation in Chilean business group firms. Cheong and Kim (2019) study the relationship between business group size and family pay premium levels in Korean business group firms.…”

Section: Introductionmentioning

confidence: 99%

“…Second, this study is the first to show that executive pay packages can be designed to facilitate tunneling by rewarding executives for their decision to benefit the controlling family at the expense of the firm they manage. Third, we add to the literature on the relationship between ownership structure and compensation (Amoako‐Adu, Baulkaran, & Smith, 2011; Cheung, Stouraitis, & Wong, 2005; Urzúa, 2009).…”

Section: Introductionmentioning

confidence: 99%

Does tunneling explain the sensitivity of executive compensation to other member firms’ performance?

Kim¹,

Kim

2020

Business Fin & Account

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This study examines how executive compensation is set when a firm is a business group member. Using Korea's unique setting of family‐controlled business groups, we find that a member firm's executive cash compensation is positively linked to the stock performance of other member firms as well as its own. Further analyses reveal that this positive link is consistent with the hypothesis that corporate managers are rewarded for their decision to benefit the controlling family at the expense of the firm they manage. Specifically, we find that the sensitivity of executive pay to other member firms’ performance exists only in respect to firms in which the cash flow rights of the controlling family exceed those of the subject firm. We also find that this sensitivity is strengthened if the controlling family's control–ownership disparity in the subject firm is above the sample median.

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Too few dividends? Groups' tunneling through chair and board compensation

Cited by 36 publications

References 20 publications

Do Shareholder Coalitions Modify the Dominant Owner's Control? The Impact on Dividend Policy

Do Shareholder Coalitions Modify the Dominant Owner's Control? The Impact on Dividend Policy

Do Business Groups Change With Market Development?

Does tunneling explain the sensitivity of executive compensation to other member firms’ performance?

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