PurposeThe purpose of this paper is to empirically investigate the influence of corporate governance variables relating to the board of directors, audit and ownership on the agency problems that inflict a firm's investments in capital and research and development (R&D) expenditures. This study posits that the R&D investments are inflicted by the agency problem of “quiet life” whereas “empire-building” agency problem affects capital expenditure decisions.Design/methodology/ approachThis study analyses the investment behaviour of non-financial and non-utility firms listed on NIFTY 200 from FY 2009 to FY 2018 using a static and dynamic model.FindingsThe results from the static model suggest that ownership concentration mitigates the agency problem of the “quiet life” that affects R&D expenditures. However, no corporate governance attribute has a significant impact on R&D investments under the assumption of the dynamic model. In respect of capital expenditures, the analysis of static model yields that audits by large auditor firms and usage of non-audit services ameliorate the agency problem of “empire-building”. The results from the dynamic model show that independent boards worsen it. They also continue to provide empirical evidence in favour of large auditors.Originality/valueThis paper contributes to the literature on the corporate governance-investment association by simultaneously examining the impact of multiple corporate governance attributes on the agency problems of “quiet life” and “empire-building” that affect R&D and capital expenditures, respectively, in a static and dynamic context for a sample of Indian firms.
This study examines the impact of multiple large shareholders (MLS) on a firm’s dividend payouts in a low-investor protection regime, India, where minority shareholders’ expropriation concerns are severe and firms have an incentive to build a capital market reputation. Therefore, we purport for the prevalence of the substitution hypothesis, whereby MLS cooperate in paying larger dividends to assuage expropriation concerns for reputation-building. The empirical analysis using non-financial firms with MLS listed on NIFTY 500 from 2009 to 2019 yields that both the controlling owner and MLS positively influence dividend payout intensity. Additional analyses also demonstrate that the positive effect of MLS is prominent in growing firms that undertake equity issuances and firms with lower board independence. We also find that firms make relatively lower payouts when an institutional investor is the second largest shareholder. Further, it is shown that MLS engage in greater dividend smoothing. Lastly, it is observed that dividends are more valuable for firms with higher MLS ownership. Altogether, these findings support the substitution hypothesis.
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