The effect of the degree of ownership control on firm diversification, market value, and merger activity

Lloyd, William P.; Modani, Naval K.; Hand, John H.

doi:10.1016/0148-2963(87)90002-6

Cited by 42 publications

(26 citation statements)

References 7 publications

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“…The very same relationship between ownership structure and R 2 is found by Lloyd et al (1987) for 429 firms in the 1970s, using stock market returns instead of accounting returns. They conclude: 'Manager-controlled firms were found to have stream of returns that are more diversified if diversification is measured by the R 2 from the regression on individual returns against the valueweighted NYSE index.…”

Section: Tests Of the Relationship Between Ownership Structure And A supporting

confidence: 68%

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Does corporate ownership structure affect its strategy towards diversification?

1999

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Section: Tests Of the Relationship Between Ownership Structure And A supporting

confidence: 68%

“…Evidence corroborating Amihud and Lev's original results from the 1960s is provided by Lloyd, Hand and Modani (1987). They use data from the 1970s for 371 companies classified into the same three corporate control groups, and obtain information from Mergers and Acquisitions on whether the mergers are diversifying.…”

Section: Introductionmentioning

confidence: 78%

Does corporate ownership structure affect its strategy towards diversification?

1999

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“…Empirical studies by Lloyd, Modani, and Hand (1987), Morck, Shleifer, and Vishny (1990), and Saunders, Strock and Travlos (1990), support Amihud and Lev"s (1981) conclusions. They observe that manager-controlled firms are more prone to diversifying their income streams, which implies risk-averse behaviour on the part of the managers.…”

Section: Literature Review and Research Objectivesupporting

confidence: 65%

More than a Fair Share? Principal-Principal Conflicts in Emerging Markets: Evidence from India

Ladkani¹,

Banerjee²

2016

IJEF

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The concentrated ownership structure of emerging market firms may help mitigate principal-agent conflicts; however, the presence of two sets of principals, promoters with controlling stake and dispersed shareholders, may give rise to principal-principal conflicts. India, where firms are largely organized as business groups, with stock pyramids and complex cross-ownership structures, presents a distinctive venue to study the presence of such conflicts. This paper tests if the principal-principal conflicts transpire in the form of risk aversion when Indian bidders seek to merge or acquire. We observe that Indian bidders resort to risk-aversion only when promoters have high cash flow rights, that is, when they hold a majority stake in the acquiring firm. We argue that in business group firms this is likely to happen due to "tunnelling distortion", whereas in standalone firms, this is likely to occur due to "portfolio concentration". However, on investigating deal-announcement returns, we observe that firms with high promoter ownership create value.

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“…Besides, growth enables managers to diversify their wealth, including human capital, and improve job security when the target's cash flows are only imperfectly correlated with those of their own firm. Such a reduction in the combined firm's overall risk can be realized more easily by acquiring targets in non-related industries as well as by engaging in cross-border takeovers (e.g., Denis et al, 2002;Lloyd et al, 1987;Moeller and Schlingemann, 2005;Norton, 1993). So, the expectation is that firms subject to agency problems of equity pursue M&As that allow growing at a faster rate, and more specifically M&As diversifying across industries and countries.…”

Section: Hypothesesmentioning

confidence: 97%