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<ul><li>University of utra Malaysia  </li></ul><ul><li>Advanced corporate financial management  </li></ul><ul><li>Article ...
Outline  <ul><li>Introduction  </li></ul><ul><li>Objectives of research  </li></ul><ul><li>Hypothesis development  </li></...
Introduction  <ul><li>This article examines and analyzes  ownership structure, cash flow and capital investment evidence f...
Objectives  of research   <ul><li>present  several theoretical  with diversifying arguments and results about relationship...
Hypothesis development overinvestment hypothesis resulting from the agency costs of free cash flow The underinvestment hyp...
Overinvestment hypothesis resulting from the agency costs of free cash flow   <ul><li>If large shareholders have a prefere...
The underinvestment hypothesis resulting from asymmetric information problems in capital markets  <ul><li>If the large sha...
Empirical specification  <ul><li>this study investigated the role of ownership structure on investment cash flow sensitivi...
Conts’ <ul><li>The formula of ownership structures on investment-cash flow sensitivities </li></ul><ul><li>I investment  <...
Conts'  <ul><li>this article have many results , it involved from a six table: </li></ul><ul><li>table 01 : which divided ...
Conts’ <ul><li>Table 05 : Regression of investment on Tobin's  Q , cash flow, and the largest shareholders' ownership stru...
Agency problem   Agency problem in the US Agency problem in East Asian The conflicts of interest  Between  Managers and Sh...
Conclusion and further research  <ul><li>high degree of separation between control rights and cash flow rights in east Asi...
Conts’ <ul><li>This research contributes to give us a different opinions on the whether the positive association between c...
References  <ul><li>Baker, M., Stein, J.C.,Wurgler, J., 2003. When does the market matter? Stock prices and the investment...
<ul><li>Hoshi, T., Kashyap, A., Scharfstein, D., 1991. Corporate structure, liquidity, and investment: evidence from Japan...
<ul><li>Thank you  </li></ul>
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Article review Ownership structure , cash flow and capital investment Evidence from East Asian economies before financial crisis

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Article review Ownership structure , cash flow and capital investment Evidence from East Asian economies before financial crisis

  1. 1. <ul><li>University of utra Malaysia </li></ul><ul><li>Advanced corporate financial management </li></ul><ul><li>Article review </li></ul><ul><li>Ownership structure , cash flow and capital investment </li></ul><ul><li>Evidence from East Asian economies before financial crisis </li></ul><ul><li>Present by : </li></ul><ul><li>Hocine boughezala hamad </li></ul><ul><li>February 3-6, 2008 New Orleans Marriott at the Convention Center New Orleans, Louisiana </li></ul>
  2. 2. Outline <ul><li>Introduction </li></ul><ul><li>Objectives of research </li></ul><ul><li>Hypothesis development </li></ul><ul><li>Overinvestment hypothesis resulting from the agency costs of free cash flow </li></ul><ul><li>The underinvestment hypothesis resulting from asymmetric information problems in capital markets </li></ul><ul><li>Empirical specification </li></ul><ul><li>Agency problem </li></ul><ul><li>Conclusion and further research </li></ul><ul><li>References </li></ul>
  3. 3. Introduction <ul><li>This article examines and analyzes ownership structure, cash flow and capital investment evidence from East Asian economics . </li></ul><ul><li>Using financial and ownership data emerging markets before the Asian financial crisis from </li></ul><ul><li>East Asian countries are Hong Kong, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand </li></ul>
  4. 4. Objectives of research <ul><li>present several theoretical with diversifying arguments and results about relationship between cash flow and capital investment. </li></ul><ul><li>All the results are consistent with the overinvestment hypothesis caused by the agency costs of free cash flow, but are inconsistent with the underinvestment hypothesis caused by asymmetric information problems </li></ul><ul><li>our results also demonstrate the enhancement and entrenchment effects of the largest shareholders' ownership and control on corporate investment </li></ul>
  5. 5. Hypothesis development overinvestment hypothesis resulting from the agency costs of free cash flow The underinvestment hypothesis resulting from asymmetric information problems in the capital markets 1 2
  6. 6. Overinvestment hypothesis resulting from the agency costs of free cash flow <ul><li>If large shareholders have a preference for overinvestment resulting from the agency costs of free cash flow, the investment-cash flow sensitivity decreases as the level of large shareholders’ cash flow right increases, while this sensitivity increases as the degree of divergence between large shareholders' control rights and their cash flow right increases </li></ul>
  7. 7. The underinvestment hypothesis resulting from asymmetric information problems in capital markets <ul><li>If the large shareholders have a preference for underinvestment resulting From asymmetric information problems In the capital markets, the investment cash flow sensitivity increases a large Shareholders cash flow rights increase and decreases as the divergence between large Shareholders control rights and cash flow right Increases </li></ul>
  8. 8. Empirical specification <ul><li>this study investigated the role of ownership structure on investment cash flow sensitivity by using formula for understand and examine the managerial entrenchment effect on investment </li></ul><ul><li>interact cash flow with difference between the largest shareholders' control rights and their cash-flow rights </li></ul>
  9. 9. Conts’ <ul><li>The formula of ownership structures on investment-cash flow sensitivities </li></ul><ul><li>I investment </li></ul><ul><li>A is assets </li></ul><ul><li>Q is measure of Tobin’s Q </li></ul><ul><li>Cash right is the largest shareholder's cash-flow rights, Divergence is the largest shareholder's control rights minus his/her cash-flow rights, and Y is a set of </li></ul>
  10. 10. Conts' <ul><li>this article have many results , it involved from a six table: </li></ul><ul><li>table 01 : which divided into two panels A and B </li></ul><ul><li>Panel A ; control rights and cash-flow rights of the largest ultimate owners </li></ul><ul><li>Panel B ; summary statistics of relevant variables </li></ul><ul><li>Table 02 : Investment regression results from sub-samples grouped by the level of cash-flow rights and by the level of separation between cash-flow rights and control rights </li></ul>
  11. 11. Conts’ <ul><li>Table 05 : Regression of investment on Tobin's Q , cash flow, and the largest shareholders' ownership structures: robustness checks </li></ul><ul><li>Table 06 : Regression of investment on Tobin's Q , cash flow, and the largest shareholders' ownership structures: low ROA group versus high ROA group </li></ul><ul><li>Table 03 : Regression of investment on Tobin's Q, cash flow, and the largest shareholders' ownership structures </li></ul><ul><li>Table 04 : Regression of investment on Tobin's Q, cash flow, and the largest shareholders' ownership structures: alternative sample size </li></ul>
  12. 12. Agency problem Agency problem in the US Agency problem in East Asian The conflicts of interest Between Managers and Shareholders The conflicts of interest Between Large Shareholders and Minority Shareholders
  13. 13. Conclusion and further research <ul><li>high degree of separation between control rights and cash flow rights in east Asian corporations </li></ul><ul><li>Finding that the investment-cash flow sensitivity decreases with increases in the cash-flow rights of the largest shareholders but it increases with the degree of divergence between the control rights and cash-flow rights of the largest shareholders </li></ul><ul><li>All the results are consistent with overinvestment hypothesis, but are inconsistent with underinvestment hypothesis </li></ul><ul><li>demonstrate the enhancement and entrenchment effects of the largest shareholders' ownership and control on corporate investment </li></ul>
  14. 14. Conts’ <ul><li>This research contributes to give us a different opinions on the whether the positive association between cash flow and investment is due to the largest shareholders' preferences to overinvest or to underinvest . </li></ul><ul><li>the East Asian economies are distinguished by family firms state-owned firms, pyramid and concentrated ownership structures, </li></ul><ul><li>Have different of agency problems between East Asia and other countries outside , like the U.S. or the U.K. </li></ul>
  15. 15. References <ul><li>Baker, M., Stein, J.C.,Wurgler, J., 2003. When does the market matter? Stock prices and the investment of equity-dependent firms. Quarterly Journal </li></ul><ul><li>of Economics 118, 969–1005. </li></ul><ul><li>Claessens, S., Djankov, S., Fan, J.P.H., Lang, L.H.P., 2002. Disentangling the incentive and entrenchment effects of large shareholders. Journal of </li></ul><ul><li>Finance 57, 2741–2771. </li></ul><ul><li>Claessens, S., Djankov, S., Lang, L.H.P., 2000. The separation of ownership and control in East Asia corporations. Journal of Financial Economics </li></ul><ul><li>58, 81–112. </li></ul><ul><li>Cleary, S., 1999. The relationship between firm investment and financial status. Journal of Finance 54, 673–692. </li></ul><ul><li>Dittmar, A., Mahrt-Smith, J., Servaes, H., 2003. International corporate governance and corporate cash holdings. Journal of Financial and </li></ul><ul><li>Quantitative Analysis 38, 111–133. </li></ul><ul><li>Dybvig, P.H., Zender, J.F., 1991. Capital structure and dividend irrelevance with asymmetric information. Review of Financial Studies 4, 201–219. </li></ul><ul><li>Fan, J.P.H.,Wong, T.J., 2002. Corporate ownership structure and the informativeness of accounting earnings in East Asia. Journal of Accounting and </li></ul><ul><li>Economics 33, 401–425. </li></ul><ul><li>Fazzari, S., Hubbard, R.G., Peterson, B.C., 1988. Financing constraints and corporate investment. Brookings Paper on Economic Activity 1, </li></ul><ul><li>141–195. </li></ul><ul><li>Fazzari, S., Hubbard, R.G., Peterson, B.C., 2000. Investment-cash flow sensitivities are useful: a comment on Kaplan and Zingales. Quarterly Journal </li></ul><ul><li>of Economics 115, 695–705 </li></ul><ul><li>Greenspan, A., 1999. Lessons from the global crises. Address to the World Bank Group and International Monetary Fund, September 27, 1999. </li></ul><ul><li>Hadlock, C.J., 1998. Ownership, liquidity, and investment. RAND Journal of Economics, 29, 487–508. </li></ul><ul><li>Harvey, C., Lins, K., Roper, A., 2004. The effect of capital structure when expected agency costs are extreme. Journal of Financial Economics 74, 3–30. </li></ul>
  16. 16. <ul><li>Hoshi, T., Kashyap, A., Scharfstein, D., 1991. Corporate structure, liquidity, and investment: evidence from Japanese industrial groups. Quarterly </li></ul><ul><li>Journal of Economics 106, 33–60. </li></ul><ul><li>Hubbard, R.G., 1998. Capital-market imperfections and investment. Journal of Economic Literature 36, 193–225. </li></ul><ul><li>Jensen, M., 1986. Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review 76, 323–329. </li></ul><ul><li>Jensen, M., Meckling, W., 1976. The theory of firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3, </li></ul><ul><li>305–350. </li></ul><ul><li>Joh, S.W., 2003. Corporate Governance and firm profitability: evidence from Korea before the economic crisis. Journal of Financial Economics 68, </li></ul><ul><li>287–322. </li></ul><ul><li>Johnson, S., Boone, P., Breach, A., Friedman, E., 2000. Corporate governance in the Asian financial crisis. Journal of Financial Economics 58, </li></ul><ul><li>141–186. </li></ul><ul><li>Kalcheva, I., Lins, K.V., in press. International evidence on cash holdings and expected managerial agency problems. Review of Financial Studies, </li></ul><ul><li>forthcoming. </li></ul><ul><li>Kaplan, S., Zingales, L., 1997. Do investment-cash flow sensitivities provide useful measures of financing constraints? Quarterly Journal of </li></ul><ul><li>Economics 112, 169–216. </li></ul><ul><li>Kaplan, S., Zingales, L., 2000. Investment-cash flow sensitivities are not valid measures of financing constraints. Quarterly Journal of Economics </li></ul><ul><li>115, 707–712. </li></ul><ul><li>Lamont, O., 1997. Cash flow and investment: evidence from internal capital markets. Journal of Finance 52, 83–110. </li></ul><ul><li>La Porta, R., Lopez-De-Silanes, F., Shleifer, A., 1999. Corporate ownership around the world. Journal of Finance 54, 471–518. </li></ul><ul><li>Lemmon, M.L., Lins, L.V., 2003. Ownership structure, corporate governance, and firm value: evidence from the East Asian financial crisis. Journal of </li></ul><ul><li>Finance 58, 1445–1468. </li></ul>
  17. 17. <ul><li>Thank you </li></ul>

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