Citation
Amin Noordin, Bany Ariffin and Mat Nor, Fauzias and McGowan, Carl B.
(2010)
Pyramidal structure, firm capital structure exploitation and ultimate owners' dominance.
International Review of Financial Analysis, 19 (3).
pp. 151-164.
ISSN 1057-5219
Abstract
In this paper we investigate how pyramid structure, separating cash flow rights and control rights, allows
ultimate owners to control the company's resources for the creation of private benefits and to avoid punishment
for such conduct. Empirical tests are conducted using three-stage least squares regression. The estimated results
provide support for the hypotheses proposed that the separation of cash flow rights and control rights have led
to the use of excess leverage among pyramidal companies to preserve ultimate owners' control. High levels of
leverage, affect the firm's valuation negatively because of the potential for financial distress. Thus, our findings
may provide one additional explanation for the severity of the decrease in corporate value among the pyramidal
companies in Malaysia as pointed out in the studies of Claessens et al. (2002), Lins (2003), and Lemmon and Lins
(2003). Secondly, the empirical evidence from this study provides insight into the forces that influence
corporate valuation of firms in developed countries particularly those that have pyramidal structure.
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