Ownership Structure and Financial Constraints: Evidence from a Structural Estimation

By Chen Lin, Yue Ma, Yuhai Xuan. 2011

162 citations recorded by the source corpus.

This article examines the impact of the divergence between corporate insiders' control rights and cash-flow rights on firms' external finance constraints via generalized method of moments estimation of an investment Euler equation. Using a large sample of U.S. firms during the 1994–2002 period, we find that the shadow value of external funds is significantly higher for companies with a wider insider control-ownership divergence, suggesting that companies whose corporate insiders have larger excess control rights are more financially constrained. The effect of insider excess control rights on external finance constraints is more pronounced for firms with higher degrees of informational opacity and for firms with financial misreporting, and is moderated by institutional ownership. The results show that the agency problems associated with the control-ownership divergence can have a real impact on corporate financial and investment outcomes.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/d5af98fef91bd1189b858485c974a75d9e37e72f

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Citations in the corpus

Industry contagion in loan spreads (2012, unknown): “As a consequence, the presence of institutional investors makes external governance more effective and increases the marginal costs of engaging in empire-building or other types of moral hazard activities (Lin, Ma, and Xuan, 2011).”
The effect of government quality on corporate cash holdings (2014, unknown): “We consider this proxy appropriate in a setting such as China where the corporate ownership structure is concentrated (Lin et al., 2011).”
Directors’ and Officers’ Liability Insurance and Acquisition Outcomes (2011, unknown): “As a consequence, the presence of institutional investors makes external governance more effective and increases the marginal costs of engaging in empire-building or other types of moral hazard activities (Lin, Ma, and Xuan, 2011).”
Business group affiliation, ownership structure, and the cost of debt (2013, background): “…even after controlling for several variables that influence the cost of debt.5 Furthermore, when the control-ownership divergence is controlled for so as to separate out the effect of ownership structure (Lin et al., 2011a), the effect of group affiliation becomes even greater (62 basis points).”
Are Financial Constraints Priced? Evidence from Textual Analysis (2018, unknown): “, 2010), firm size and age (Hadlock and Pierce, 2010), structural estimation (Whited and Wu, 2006; Lin et al., 2011; Karaivanov and Townsend, 2014), and textual information (Bodnaruk et al.”