Journal of Corporate Finance Volume 31, April 2015, Pages 220–245
Family control and corporate cash holdings: Evidence from China
Qigui Liu , Tianpei Luo , Gary Gang Tian,
- We examine effect of family control on cash holding in China.
- High cash holding are tunneled other than being invested or paid to shareholders.
- Multiple large shareholders tend to collude with controlling family.
- NTS reform helps to alleviate the issue of family firms’ high cash holding.
- Founders with one child, politically connected and involved in management hold more cash.
This study examines the effect of family control on the cash holding policy in China. We find that family firms with excess control rights tend to have high cash holdings that are tunneled rather than being invested or paid to shareholders. We further show that the incentive for controlling families to hold cash and for tunneling is exacerbated by the agency conflict between controlling and minority shareholders, i.e., it is weakened after the Chinese Non-tradable share (NTS) reform and strengthened by the presence of multiple large shareholders who probably play no monitoring role in Chinese family firms. Furthermore, family firms’ incentive to hold cash for tunneling is influenced by the unique characteristics of Chinese firms in the following ways: the incentive is stronger when the family founder has one child and face family succession problem, and when the founder has political connections and directly involves in firm’s management; while it is weakened by family founder’s social interpersonal trust with other entrepreneurs through their membership of Chambers of Commerce. Overall, we argue that family firms in China tend to hold high levels of cash for tunneling, which harms firm value, while the severe controlling-minority shareholder agency conflicts and unique Chinese family characteristics only make this situation worse.
Kumho Asiana Group Chairman Park Sam Koo Accused of Stock Price Manipulation
SEOUL, SOUTH KOREA
15 April 2015 – 11:15am
Kumho Asiana Group Chairman Park Sam Koo has been accused of allegedly manipulating stock prices in order to lower the takeover price of Kumho Industrial Co. Continue reading →
‘Absconding’ i-Core boss held at last
Dwaipayan Ghosh, TNN
| Apr 17, 2015, 03.12AM IST
KOLKATA: The CID on Thursday arrested Anukul Maiti, chairman and managing director of the alleged Ponzi firm i-Core group, who was “absconding” since Saradha went bust two years ago.
Maiti, 52, was nabbed from Lords Bakery crossing on Prince Anwar Shah Road near South City mall, said CID. He is accused in a Rs 15 lakh cheating case registered on June 10 last year and also faces charges under Prize Chit and Money Circulation Banning Act. A court remanded him in 11 days’ police custody. Continue reading →
Stock manipulation: Vipul
16 April 2015
Over the past one year, the stock price of Vipul shot up by 883%. Even though nearly 35% of the promoters’ shares is pledged, this does not appear to be a concern for the regulator Present on the S&P BSE Small Cap index, Vipul Ltd generates revenue from the construction and development of real estate. Over the past four quarters, this small-cap stock has generated total revenue of Rs267 crore and a net loss of Rs3.68 crore. The stock was thinly traded until a year back, with a turnover of about Rs1,000 per day in February 2014. However, the trading turnover shot up to over Rs10 lakh a day in February 2015. Over the past one year, the stock price has shot up by 883% to Rs45.90 on 1 April 2015 from Rs4.67 on 25 March 2014. Nearly 35% of the promoters’ shares have been pledged to multiple finance institutions to secure loans. The steep rise in the stock price and the high quantity of pledged shares do not appear to be a concern for the regulator.