Corporate governance and market valuation of R&D-based firms: the effect of controlling shareholders and ownership-control discrepancy Online publication date: Mon, 19-Dec-2016
by Atef Hamdi
EuroMed J. of Management (EMJM), Vol. 1, No. 3, 2016
Abstract: This paper aims to investigate the relationship between ownership structure and the valuation of R&D-based firms by focusing on two mechanisms in a concentrated ownership setting: large controlling shareholders (LCSs) and ownership-control discrepancy. Examining a sample of 143 R&D-companies, this study provides evidence that the market value depends critically on the identity of controllers and excess control. Specifically, our results show that when the LCS is a family that uses a democratic voting rule, the firm value increases; consistent with the incentive effect hypothesis. However, when the family maintains control while holding fewer cash flow rights, the firm value decreases; consistent with the entrenchment effect hypothesis. Additional results provide evidence that, in a concentrated ownership setting, internal and external means of governance have a subordinate role of control. Specifically, our results show a second-order effect of board composition, compensation policy and analysts coverage on the valuation of R&D-based firms.
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