Pyramiding effect on firm's investment decision among Malaysian distress companies

Fauzias Mat Nor, Bany Ariffin

    Research output: Contribution to journalArticle

    1 Citation (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 a Pyramidal Ownership Structure. A direct results 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 investigate the impact of this separation of cash flow rights from control rights resulting from this pyramidal forms of ownership structure on firm's investment decisions. In particular, our objective is to examine whether such separation affects the investment decisions among Malaysian listed distress Companies. Our findings lends support to the over investment problem, where by the separation of cash flow rights and control rights have lead to the increase of inefficient investment among the distress companies. The main source of financing for this inefficient investment activity is the firm's retained earnings. Consequently, the exploitation of such firm's resources in order to finance this inefficient investment activities of the ultimate owner's then lead to negative market valuation.

    Original languageEnglish
    Pages (from-to)163-172
    Number of pages10
    JournalCorporate Ownership and Control
    Volume3
    Issue number1 B
    Publication statusPublished - 2005

    Fingerprint

    Firm investment
    Control rights
    Distress
    Cash flow rights
    Investment decision
    Ownership structure
    Owners
    Investment activity
    Intermediaries
    Divergence
    Overinvestment
    Finance
    Language
    Retained earnings
    Firm resources
    Exploitation
    Market valuation
    Financing
    Large shareholders

    Keywords

    • Corporate control
    • Ownership
    • Pyramidal structures

    ASJC Scopus subject areas

    • Business, Management and Accounting(all)

    Cite this

    Pyramiding effect on firm's investment decision among Malaysian distress companies. / Mat Nor, Fauzias; Ariffin, Bany.

    In: Corporate Ownership and Control, Vol. 3, No. 1 B, 2005, p. 163-172.

    Research output: Contribution to journalArticle

    Mat Nor, Fauzias ; Ariffin, Bany. / Pyramiding effect on firm's investment decision among Malaysian distress companies. In: Corporate Ownership and Control. 2005 ; Vol. 3, No. 1 B. pp. 163-172.
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