Corporate governance and market valuation of R&D-based firms: the effect of controlling shareholders and ownership-control discrepancy Online publication date: Mon, 19-Dec-2016
by Atef Hamdi
EuroMed J. of Management (EMJM), Vol. 1, No. 3, 2016
Abstract: This paper aims to investigate the relationship between ownership structure and the valuation of R&D-based firms by focusing on two mechanisms in a concentrated ownership setting: large controlling shareholders (LCSs) and ownership-control discrepancy. Examining a sample of 143 R&D-companies, this study provides evidence that the market value depends critically on the identity of controllers and excess control. Specifically, our results show that when the LCS is a family that uses a democratic voting rule, the firm value increases; consistent with the incentive effect hypothesis. However, when the family maintains control while holding fewer cash flow rights, the firm value decreases; consistent with the entrenchment effect hypothesis. Additional results provide evidence that, in a concentrated ownership setting, internal and external means of governance have a subordinate role of control. Specifically, our results show a second-order effect of board composition, compensation policy and analysts coverage on the valuation of R&D-based firms.
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the EuroMed J. of Management (EMJM):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email subs@inderscience.com