TY - JOUR
T1 - Ownership structure and financial constraints
T2 - Evidence from a structural estimation
AU - Lin, Chen
AU - Ma, Yue
AU - Xuan, Yuhai
N1 - Funding Information:
We are grateful to Ben Esty, Stuart Gilson, Paul Gompers, Joy Ishii, Bill Schwert (the editor), Andrei Shleifer, Jeremy Stein, Belen Villalonga, and an anonymous referee for helpful suggestions and comments. Lin and Xuan acknowledge financial support from the Chinese University of Hong Kong and the Division of Research of the Harvard Business School, respectively.
PY - 2011/11
Y1 - 2011/11
N2 - 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.
AB - 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.
KW - Financial constraints
KW - Insider excess control rights
KW - Ownership structure
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U2 - 10.1016/j.jfineco.2011.06.001
DO - 10.1016/j.jfineco.2011.06.001
M3 - Article
AN - SCOPUS:80052751003
SN - 0304-405X
VL - 102
SP - 416
EP - 431
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 2
ER -