Controlling shareholders and financial constraints around the world
Abstract
Purpose
The purpose of this paper is to examine the effect of controlling shareholders’ ownership of firms on the firms’ financial constraints in 22 economies for the 1982-2009 period.
Design/methodology/approach
The authors employ a generalized method of moments-based instrumental variables estimator to estimate empirical models.
Findings
It found that the overinvestment propensity of controlling shareholders becomes less severe with an increase in cash-flow rights. It further indicates that a higher deviation between the control rights and cash-flow rights of controlling shareholders lower their overinvestment propensity, thereby lowering the firm’s financial constraints.
Originality/value
The results suggest that a higher protective legal environment for minority shareholders blocks the entrenchment of controlling shareholders and thus benefitting the firm with slackened financing constraints in the given legal origin.
Keywords
Citation
Park, J.H., Park, K. and Ratti, R.A. (2018), "Controlling shareholders and financial constraints around the world", Managerial Finance, Vol. 44 No. 1, pp. 92-108. https://doi.org/10.1108/MF-08-2016-0228
Publisher
:Emerald Publishing Limited
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