Family control and corporate cash holdings: Evidence from China

This study examines the effect of family control on the cash holding policy in China. We find that family firms with excess control rights tend to have high cash holdings that are tunneled rather than being invested or paid to shareholders. We further show that the incentive for controlling families to hold cash and for tunneling is exacerbated by the agency conflict between controlling and minority shareholders, i.e., it is weakened after the Chinese Non-tradable share (NTS) reform and strengthened by the presence of multiple large shareholders who probably play no monitoring role in Chinese family firms. Furthermore, family firms’ incentive to hold cash for tunneling is influenced by the unique characteristics of Chinese firms in the following ways: the incentive is stronger when the family founder has one child and face family succession problem, and when the founder has political connections and directly involves in firm’s management; while it is weakened by family founder’s social interpersonal trust with other entrepreneurs through their membership of Chambers of Commerce. Overall, we argue that family firms in China tend to hold high levels of cash for tunneling, which harms firm value, while the severe controlling-minority shareholder agency conflicts and unique Chinese family characteristics only make this situation worse.

Controlling shareholder, expropriations and firm’s leverage decision: Evidence from Chinese Non-tradable share reform

This paper examines the effect of excess control rights on the leverage decisions made by Chinese non-SOEs before and after the Non-tradable share reform (NTS reform). We find that firms with excess control rights have more excess leverage and their controlling shareholders use the resources for tunneling rather than investing in positive NPV projects. We also find that excess leverage in firms with excess control rights decreases and the market reaction to announcements of related party transactions are more positive after NTS reform. This confirms that tunneling by the controlling shareholders actually reduced. We argue that in emerging markets where legal protection for creditors and shareholders is weak, controlling shareholders borrow excess debt to tunnel through inter-corporate loans and related party transactions. Furthermore the privatization of these economies can reduce the controlling shareholders' tunneling activities and associated excess leverage which destroys firm value.

Separation of Control and Cash-Flow Rights of State Owned Listed Enterprises: Channels of Expropriation after the Discriminated Share Reform in China

Literature on agency problems arising between controlling and minority owners claim that separation of cash flow and control rights allows controllers to expropriate listed firms, and further that separation emerges when dual class shares or pyramiding corporate structures exist. Dual class share and pyramiding coexisted in listed companies of China until discriminated share reform was implemented in 2005. This paper presents a model of controller to expropriate behavior as well as empirical tests of expropriation via particular accounting items and pyramiding generated expropriation. Results show that expropriation is apparent for state controlled listed companies. While reforms have weakened the power to expropriate, separation remains and still generates expropriation. Size of expropriation is estimated to be 7 to 8 per cent of total asset at mean. If the "one share, one vote" principle were to be realized, asset inflation could be reduced by 13 percent.

Devolution of forest-related rights: Comparative analyses of six developing countries

The study focused on the different ways that forest-related rights can be devolved to the local level according to the current legal frameworks in Laos, Nepal, Vietnam, Kenya, Mozambique and Tanzania. The eleven case studies represented the main ways in which forest-related rights can be devolved to communities or households in these countries. The objectives of this study were to 1) analyse the contents and extent of forest-related rights that can be devolved to the local level, 2) develop an empirical typology that represents the main types of devolution, and 3) compare the cases against a theoretical ideal type to assess in what way and to what extent the cases are similar to or differ from the theoretical construct. Fuzzy set theory, Qualitative Comparative Analysis and ideal type analysis were used in analysing the case studies and in developing an empirical typology. The theoretical framework, which guided data collection and analyses, was based on institutional economics and theories on property rights, common pool resources and collective action. On the basis of the theoretical and empirical knowledge, the most important attributes of rights were defined as use rights, management rights, exclusion rights, transfer rights and the duration and security of the rights. The ideal type was defined as one where local actors have been devolved comprehensive use rights, extensive management rights, rights to exclude others from the resource and rights to transfer these rights. In addition, the rights are to be secure and held perpetually. The ideal type was used to structure the analysis and as a tool against which the cases were analysed. The contents, extent and duration of the devolved rights varied greatly. In general, the results show that devolution has mainly meant the transfer of use rights to the local level, and has not really changed the overall state control over forest resources. In most cases the right holders participate, or have a limited role in the decision making regarding the harvesting and management of the resource. There was a clear tendency to devolve the rights to enforce rules and to monitor resource use and condition more extensively than the powers to decide on the management and development of the resource. The empirical typology of the cases differentiated between five different types of devolution. The types can be characterised by the devolution of 1) restricted use and control rights, 2) extensive use rights but restricted control rights, 3) extensive rights, 4) insecure, short term use and restricted control rights, and 5) insecure extensive rights. Overall, the case studies conformity to the ideal type was very low: only two cases were similar to the ideal type, all other cases differed considerably from the ideal type. The restricted management rights were the most common reason for the low conformity to the ideal type (eight cases). In three cases, the short term of the rights, restricted transfer rights, restricted use rights or restricted exclusion rights were the reason or one of the reasons for the low conformity to the ideal type. In two cases the rights were not secure.

Relational dimensions of corporate governance in translation: networked governance in China and India

The effectiveness of corporate governance mechanisms has been a subject of academic research for many decades. Although the large majority of corporate governance studies prior to mid 1990s were based on data from developed market economies such as the U.S., U.K. and Japan, in recent years researchers have begun examining corporate governance in transition economies. A comparison of China and India offers a unique environment for analyzing the effectiveness of corporate governance. First, both countries state-owned enterprise (SOE) reform strategies hinges on the Modern Enterprise System characterized by the separation of ownership and control. Ownership of an SOE’s assets is distributed among the government, institutional investors, managers, employees, and private investors. Effective control rights are assigned to management, which generally has a very small, or even nonexistent ownership stake. This distinctive shareholding structure creates conflict of interest not only between management (insiders) and outside investors but also between large shareholders and minority investors. Moreover, because both governments desire to retain some control—in part through partial retained ownership of commercialized SOEs, further conflicts arise between politicians and firms. Second, directors in publicly listed firms in both countries are predominantly drawn from institutions with significant non-market objectives: the government and other state enterprises, particularly in China, and extended families, particularly in India. As a result, the effectiveness of internal governance mechanisms, such as the number of independent directors on the board and the number of independent supervisors on the supervisory committee, are likely to be quiet limited, although this has yet to be fully evaluated. Third, because of the political nature of the privatization process itself, typical external governance mechanisms, such as debt (in conjunction with appropriate bankruptcy procedures), takeover threats, legal protection of investors, product market competition, etc., have not been effective. Bank loans have traditionally been viewed as grants from the state designed to bail out failing firms. State-owned banks retain monopoly or quasi-monopoly positions in the banking sector and profit is not their overriding objective. If political favor is deemed appropriate, subsidized loans, rescheduling of overdue debt or even outright transfer of funds can be arranged with SOEs (soft budget constraints). In addition, a market for private, non-bank debt is limited in India and has yet to be established China. There is no active merger or takeover activity in Chinese stock markets to discipline management. Information available in the capital markets is insufficient to keep at arm’s length of the corporate decisions. In light of the above peculiarities, China and India share many of the typical institutional characteristics as a transition economy, including poor legal protection of creditors and investors, the absence of an effective takeover market, an underdeveloped capital market, a relative inefficient banking system and significant interference of politicians in firm management. Su (2005) finds that the extent of political interference, managerial entrenchment and institutional control can help explain corporate dividend policies and post-IPO financing choices in this situation. Allen et al. (2005) demonstrate that standard corporate governance mechanisms are weak and ineffective for publicly listed firms while alternative governance mechanisms based on reputation and relationship have been remarkably effective in the private sector. Because the peculiarities are significant in this context, the differences in the political-economies of the two countries are likely to be evident in such relational terms. In this paper we explore the peculiarities of corporate governance in this transitional environment through a systematic examination of certain aspects of these reputational and relationship dimensions. Utilising the methods of social network analysis we identify the inter-organisational relationships at board level formed by equity holdings and by shared directors. Using data drawn from the Orbis database we map these relations among the 3700 largest firms in India and China respectively and identify the roles played in these relational networks by the particularly characteristic institutions in each case. We find greatly different social network structures in each case with some support in these relational dimensions for their distinctive features of governance. Further, the social network metrics allow us to considerably refine proxies for political interference, managerial entrenchment and institutional control used in earlier econometric analysis.

Active Controllers or Wealthy Rentiers?: Large Shareholders in Victorian Public Companies

This article addresses the issue of whether large shareholders in Victorian public companies were active in the control of companies or were simply wealthy rentiers. Using ownership records for 890 firm-years, we examine the control rights, socio-occupational background, and wealth of large shareholders. We find that many large shareholders had limited voting rights and neither they nor family members were directors. This implies that the majority of public companies in the second half of the nineteenth century cannot be characterized as family companies and that large shareholders are better viewed as wealthy gentlemen capitalists rather than entrepreneurs.

Disproportional ownership structure and pay–performance relationship: evidence from China’s listed firms

This paper examines the impact of ownership structure on executive compensation in China's listed firms. We find that the cash flow rights of ultimate controlling shareholders have a positive effect on the pay–performance relationship, while a divergence between control rights and cash flow rights has a significantly negative effect on the pay–performance relationship. We divide our sample based on ultimate controlling shareholders' type into state owned enterprises (SOE), state assets management bureaus (SAMB), and privately controlled firms. We find that in SOE controlled firms cash flow rights have a significant impact on accounting based pay–performance relationship. In privately controlled firms, cash flow rights affect the market based pay–performance relationship. In SAMB controlled firms, CEO pay bears no relationship with either accounting or market based performance. The evidence suggests that CEO pay is inefficient in firms where the state is the controlling shareholder because it is insensitive to market based performance but consistent with the efforts of controlling shareholders to maximize their private benefit.

Restructuring the Greek banking sector with an empty purse. CEPS Commentary, 13 July 2015

Greek banks are close to collapse, even if a new bail-out programme is agreed soon. The deterioration of the economy means that their fragile capital position is deteriorating further. In this CEPS Commentary, Daniel Gros observes that any new programme needs to include recapitalisation, comprising possibly a bail-in and restructuring to get the banking system working again. With only a small part of the assets unencumbered and a government with empty pockets, the depositors might have to take a large part of the burden. As private investors are unlikely to participate in a recapitalisation, foreign official funds will be needed. A direct equity investment by the EIB or the EBRD could be used to transfer control rights, and special ESM bonds could be used to provide additional capital without entailing additional risk to the creditors

Expropriation of minority shareholders and payout policy

This paper studies the payout policy of Italian firms controlled by large majority shareholders (controlled firms). The paper reports that a firm’s share of dividends in total payout (dividends plus repurchases) is negatively related to the size of the cash flow stake of the firm’s controlling shareholder and positively associated with the wedge between the controlling shareholder’s control rights and cash flow rights. These findings are consistent with the substitute model of payout. One of the implications of this model is that controlled firms with weak corporate governance set-ups, in which controlling shareholders have strong incentives to expropriate minority shareholders, tend to prefer dividends over repurchases when disgorging cash.

Ultimate controlling shareholders and dividend payout policy in Chinese stock market

Departing from the traditional cash flow rights-dividend policy framework, this study investigates whether the level of control rights and the types of ultimate controlling shareholders (UCSs) of listed firms in China influence their cash dividend payout. We find that the level of control rights is positively associated with both the probability to pay and the level of cash dividend payout, which indicates that UCSs use cash dividends to reduce the agency cost of free cash flow and redirect listed firms' cash balance. Furthermore, different types of UCSs influence dissimilarly on the controlled firms' cash dividends, which can be attributed to the backgrounds of these UCSs originating from China's unique partial share issuance privatization process.

The Punitive Turn in Juvenile Justice: Cultures of Control and Rights of Compliance in Western Europe and the USA

Separate systems of justice for children and young people have always been beset by issues of contradiction and compromise. There is compelling evidence that such ambiguity is currently being `resolved' by a greater governmental resort to neo-conservative punitive and correctional interventions and a neo-liberal responsibilizing mentality in which the protection historically afforded to children is rapidly dissolving. This resurgent authoritarianism appears all the more anachronistic when it is set against the widely held commitment to act within the guidelines established by various children's rights conventions. Of note is the United Nations Convention on the Rights of the Child, frequently described as the most ratified human rights convention in the world, but lamentably also the most violated. Based on international research on juvenile custody rates and children's rights compliance in the USA and Western Europe, this article examines why and to what extent `American exceptionalism' might be permeating European nation states.

Excess water storage depth - A water management practice to control simetryn and thiobencarb runoff from paddy fields

Experiments were carried out to verify the effectiveness of the excess water storage depth (EWSD) in reducing runoff losses of simetryn and thiobencarb from paddy fields upon appreciable rainfall events. A paddy plot having an EWSD of 2 cm was effective in controlling runoff with the herbicide losses of less than 1% of the applied herbicides. Meanwhile, a plot with 0-cm EWSD lost 18.1 and 3.7% of the applied mass of simetryn and thiobencarb, respectively. Therefore, an appropriate EWSD is essential during the recommended 7-day water holding period in order to completely hold the water inside the field in case of rainfall.