This paper explores the relationship between firm performance, measured by Tobin's Q and very powerful controlling shareholders in a sample of Belgian listed firms. The paper shows that overall the largest shareholders have a negative effect on firm performance. Nevertheless, in family firms the effect of large controlling shareholders on performance is positive except when they are organized in voting blocks. Firms related to coordination centers display higher performance associated with large shareholders. The paper shows that the presence of a second shareholder in the firm has no significant effect.
We use a sample of banks from 24 European countries to investigate whether the adoption of the Basel II Capital Accord in 2008 affects the market valuation of discretionary loan loss provisions (DLLPs). Although Basel II lowers the incentives of internal ratingsbased (IRB) banks to recognize income-increasing DLLPs in an opportunistic manner, it has no such impact on the remaining banks, which adopt the Standardized methodology. We use this setup in a difference-in-difference (DiD) design, where Standardized banks act as a control group. Our evidence supports the three hypotheses that, for IRB relative to Standardized banks, Basel II is associated with (i) less income-increasing DLLPs and (ii) less income-smoothing via DLLPs, which enhances the informational content of DLLPs about future loan losses and leads to (iii) higher market valuation of DLLPs. Our findings are timely and have policy implications for future regulatory developments in the banking industry.
We critically reassess the notion that high liquid asset holding by firms faced with weak investor protection is evidence of managerial rent extraction. We show that firms facing agency problems may establish tight controls over management through concentrated ownership. Using data on Belgian listed firms between 1991 and 2006, we find a strong positive association between ownership concentration and cash holding. This indicates a precautionary motive on the part of the controlling shareholders who highly value control. We also find that firm market valuation is positively affected by the amount of cash held by firms. On the other hand, managerial ownership has no impact. These results are consistent with the hypothesis that firms' owners are pursuing a rational strategy to mitigate agency costs in the face of weak investor protections.
We consider the effect on performance of very large controlling shareholders, who are mostly organized in voting blocks and business groups, in a sample of Belgian listed firms from 1991 to 2006. Since the shape of the relation between ownership and firm value is a controversial issue in corporate finance, we use semiparametric local-linear kernel-based panel models. These models allow us not to impose a priori functional restrictions on the relation between ownership and performance. Our semiparametric analysis shows that the effect on performance varies depending on the size of ownership stakes and that there are departures from linearity, especially in family firms. Our results suggest that this non-linearity in family firms is related to whether or not the CEO is a family member.
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