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Controlling shareholders and financial constraints around the world
Park, Jin Ho,Park, Kwangwoo,Ratti, Ronald Andrew Emerald (MCB UP ) 2018 Managerial finance Vol.44 No.1
<B>Purpose</B><P>The purpose of this paper is to examine the effect of controlling shareholders’ ownership of firms on the firms’ financial constraints in 22 economies for the 1982-2009 period.</P><B>Design/methodology/approach</B><P>The authors employ a generalized method of moments-based instrumental variables estimator to estimate empirical models.</P><B>Findings</B><P>It found that the overinvestment propensity of controlling shareholders becomes less severe with an increase in cash-flow rights. It further indicates that a higher deviation between the control rights and cash-flow rights of controlling shareholders lower their overinvestment propensity, thereby lowering the firm’s financial constraints.</P><B>Originality/value</B><P>The results suggest that a higher protective legal environment for minority shareholders blocks the entrenchment of controlling shareholders and thus benefitting the firm with slackened financing constraints in the given legal origin.</P>
Jin Ho Park,Kwangwoo Park,Ronald A. Ratti 한국재무학회 2012 한국재무학회 학술대회 Vol.2012 No.11
This paper examines the effect of ownership structure of a controlling shareholder on the financial constraints of non-financial firms in 22 economies for the 1982-2009 period. We find that the overinvestment propensity of a controlling shareholder becomes less severe with an increase in cash-flow rights along with a greater deviation between control rights and cash-flow rights, which makes a firm less financially constrained. Our results suggest that firms in legal environment with stronger shareholder protections are less likely to have the entrenchment of the controlling shareholders, while minority shareholders in this legal origin benefit from loosened financial constraints.