Does pyramiding have an impact on firm's capital structure decision among Malaysian distress companies?

Fauzias Mat Nor, Bany Ariffin

    Research output: Contribution to journalArticle

    2 Citations (Scopus)

    Abstract

    It is documented by La Porta, Lopez and Shleifer (1999) that ultimate owners around the world usually control an array of affiliated companies through hierarchical intermediary corporations forming pyramidal holdings. A direct result of this pyramidal ownership structure is divergence of cash flow rights from control rights in the hand of the largest shareholders (Claessens, Djankov and Lang 2000). This paper investigates the impact of this separation of cash flow rights from control rights resulting from these pyramidal forms of ownership structure on firm's capital structure. In particular, our objective is to examine whether such separation affects the financing decisions among Malaysian listed distressed companies. Even though it is not conclusive our findings somewhat lend support to the leverage-increasing non-dilution entrenchment effect on corporate leverage, whereby the separation of cash flow rights and control rights leads to the increase of leverage among the distressed companies. Consequently, excessive use of leverage in order to protect ultimate owner's dominance in these companies then leads to disastrous financial valuation.

    Original languageEnglish
    Pages (from-to)93-106
    Number of pages14
    JournalCorporate Ownership and Control
    Volume2
    Issue number4
    Publication statusPublished - 2005

    Fingerprint

    Capital structure
    Leverage
    Distress
    Cash flow rights
    Control rights
    Ownership structure
    Owners
    Intermediaries
    Divergence
    Entrenchment
    Listed companies
    Large shareholders
    Language
    Financing decisions

    Keywords

    • Capital structure
    • Control rights
    • Malaysian companies
    • Ownership structure

    ASJC Scopus subject areas

    • Business, Management and Accounting(all)

    Cite this

    Does pyramiding have an impact on firm's capital structure decision among Malaysian distress companies? / Nor, Fauzias Mat; Ariffin, Bany.

    In: Corporate Ownership and Control, Vol. 2, No. 4, 2005, p. 93-106.

    Research output: Contribution to journalArticle

    @article{f926310cf055480fabba5b793679c478,
    title = "Does pyramiding have an impact on firm's capital structure decision among Malaysian distress companies?",
    abstract = "It is documented by La Porta, Lopez and Shleifer (1999) that ultimate owners around the world usually control an array of affiliated companies through hierarchical intermediary corporations forming pyramidal holdings. A direct result of this pyramidal ownership structure is divergence of cash flow rights from control rights in the hand of the largest shareholders (Claessens, Djankov and Lang 2000). This paper investigates the impact of this separation of cash flow rights from control rights resulting from these pyramidal forms of ownership structure on firm's capital structure. In particular, our objective is to examine whether such separation affects the financing decisions among Malaysian listed distressed companies. Even though it is not conclusive our findings somewhat lend support to the leverage-increasing non-dilution entrenchment effect on corporate leverage, whereby the separation of cash flow rights and control rights leads to the increase of leverage among the distressed companies. Consequently, excessive use of leverage in order to protect ultimate owner's dominance in these companies then leads to disastrous financial valuation.",
    keywords = "Capital structure, Control rights, Malaysian companies, Ownership structure",
    author = "Nor, {Fauzias Mat} and Bany Ariffin",
    year = "2005",
    language = "English",
    volume = "2",
    pages = "93--106",
    journal = "Corporate Ownership and Control",
    issn = "1727-9232",
    publisher = "Virtus Interpress",
    number = "4",

    }

    TY - JOUR

    T1 - Does pyramiding have an impact on firm's capital structure decision among Malaysian distress companies?

    AU - Nor, Fauzias Mat

    AU - Ariffin, Bany

    PY - 2005

    Y1 - 2005

    N2 - It is documented by La Porta, Lopez and Shleifer (1999) that ultimate owners around the world usually control an array of affiliated companies through hierarchical intermediary corporations forming pyramidal holdings. A direct result of this pyramidal ownership structure is divergence of cash flow rights from control rights in the hand of the largest shareholders (Claessens, Djankov and Lang 2000). This paper investigates the impact of this separation of cash flow rights from control rights resulting from these pyramidal forms of ownership structure on firm's capital structure. In particular, our objective is to examine whether such separation affects the financing decisions among Malaysian listed distressed companies. Even though it is not conclusive our findings somewhat lend support to the leverage-increasing non-dilution entrenchment effect on corporate leverage, whereby the separation of cash flow rights and control rights leads to the increase of leverage among the distressed companies. Consequently, excessive use of leverage in order to protect ultimate owner's dominance in these companies then leads to disastrous financial valuation.

    AB - It is documented by La Porta, Lopez and Shleifer (1999) that ultimate owners around the world usually control an array of affiliated companies through hierarchical intermediary corporations forming pyramidal holdings. A direct result of this pyramidal ownership structure is divergence of cash flow rights from control rights in the hand of the largest shareholders (Claessens, Djankov and Lang 2000). This paper investigates the impact of this separation of cash flow rights from control rights resulting from these pyramidal forms of ownership structure on firm's capital structure. In particular, our objective is to examine whether such separation affects the financing decisions among Malaysian listed distressed companies. Even though it is not conclusive our findings somewhat lend support to the leverage-increasing non-dilution entrenchment effect on corporate leverage, whereby the separation of cash flow rights and control rights leads to the increase of leverage among the distressed companies. Consequently, excessive use of leverage in order to protect ultimate owner's dominance in these companies then leads to disastrous financial valuation.

    KW - Capital structure

    KW - Control rights

    KW - Malaysian companies

    KW - Ownership structure

    UR - http://www.scopus.com/inward/record.url?scp=84888399876&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=84888399876&partnerID=8YFLogxK

    M3 - Article

    VL - 2

    SP - 93

    EP - 106

    JO - Corporate Ownership and Control

    JF - Corporate Ownership and Control

    SN - 1727-9232

    IS - 4

    ER -