Pyramidal structure, firm capital structure exploitation and ultimate owners' dominance

A. N. Bany-Ariffin, Fauzias Mat Nor, Carl B. McGowan

    Research output: Contribution to journalArticle

    24 Citations (Scopus)

    Abstract

    In this paper we investigate how pyramid structure, separating cash flow rights and control rights, allows ultimate owners to control the company's resources for the creation of private benefits and to avoid punishment for such conduct. Empirical tests are conducted using three-stage least squares regression. The estimated results provide support for the hypotheses proposed that the separation of cash flow rights and control rights have led to the use of excess leverage among pyramidal companies to preserve ultimate owners' control. High levels of leverage, affect the firm's valuation negatively because of the potential for financial distress. Thus, our findings may provide one additional explanation for the severity of the decrease in corporate value among the pyramidal companies in Malaysia as pointed out in the studies of Claessens et al. (2002), Lins (2003), and Lemmon and Lins (2003). Secondly, the empirical evidence from this study provides insight into the forces that influence corporate valuation of firms in developed countries particularly those that have pyramidal structure.

    Original languageEnglish
    Pages (from-to)151-164
    Number of pages14
    JournalInternational Review of Financial Analysis
    Volume19
    Issue number3
    DOIs
    Publication statusPublished - Jun 2010

    Fingerprint

    Firm structure
    Control rights
    Owners
    Capital structure
    Leverage
    Exploitation
    Cash flow rights
    Financial distress
    Corporate value
    Empirical test
    Severity
    Empirical evidence
    Developed countries
    Business valuation
    Private benefits
    Malaysia
    Punishment
    Resources
    Three-stage least squares
    Firm valuation

    Keywords

    • Capital structure
    • Financial distress
    • Firm value
    • Pyramidal structure
    • Ultimate owners

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Finance

    Cite this

    Pyramidal structure, firm capital structure exploitation and ultimate owners' dominance. / Bany-Ariffin, A. N.; Mat Nor, Fauzias; McGowan, Carl B.

    In: International Review of Financial Analysis, Vol. 19, No. 3, 06.2010, p. 151-164.

    Research output: Contribution to journalArticle

    Bany-Ariffin, A. N. ; Mat Nor, Fauzias ; McGowan, Carl B. / Pyramidal structure, firm capital structure exploitation and ultimate owners' dominance. In: International Review of Financial Analysis. 2010 ; Vol. 19, No. 3. pp. 151-164.
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