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Article
Publication date: 28 September 2010

Yves Bozec, Richard Bozec and Mohamed Dia

The objective of this study is to investigate further the interplay between corporate governance and firm performance with special focus on a situation expected to bring larger…

1568

Abstract

Purpose

The objective of this study is to investigate further the interplay between corporate governance and firm performance with special focus on a situation expected to bring larger agency costs to the firm, that is, when voting rights of the dominant shareholder exceed his/her cash flow rights.

Design/methodology/approach

The research is conducted in Canada over a four‐year period from 2002 to 2005 and uses a balanced sample of 130 firms or 520 firm‐year observations. Corporate governance is measured based on the ROB corporate governance index published by The Globe and Mail.

Findings

The results clearly show a positive and significant relationship between the ROB governance scores and Tobin's Q, when there is a separation between voting and cash flow rights. In the absence of any excess voting rights, no significant relation is found between governance and performance.

Practical implications

The findings suggest that regulators need to exercise caution before deciding whether or not to recommend or impose corporate governance rules for all firms, since the benefits of these rules may vary among the firms.

Originality/value

The study contributes to explaining mixed international evidence on the governance‐performance relationship, while directing attention to the moderating effect of the deviation from the one share‐one vote principle. To the best of the authors' knowledge, no other study using corporate governance indices has taken into account the impact of excess voting rights despite the widespread use of that practice outside the USA.

Details

International Journal of Managerial Finance, vol. 6 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 28 January 2014

Yves Bozec, Claude Laurin and Iwan Meier

The purpose of this study is to investigate the relationship between dominant shareholders, whose voting rights exceed cash flow rights (excess control), and firms’ cost of…

2287

Abstract

Purpose

The purpose of this study is to investigate the relationship between dominant shareholders, whose voting rights exceed cash flow rights (excess control), and firms’ cost of capital, including both equity capital and debt.

Design/methodology/approach

This research is conducted in Canada over a four-year period from 2002 to 2005 and uses panel data of 155 S&P/TSX firms. The weighted average cost of capital is regressed on excess control using fixed-effect regressions in a two-stage least squares framework.

Findings

The paper finds evidence that the cost of capital increases with excess control. The paper also confirms that for firms incorporated under the less protective Quebec incorporation law the excess control and, therefore, cost of capital is higher than for firms incorporated in the other provinces under the common law regime.

Originality value

Prior work examined the relationship between excess control and firm value, mostly Tobin's Q. By using cost of capital, the study explores another channel through witch excess control may affect firm value.

Details

International Journal of Managerial Finance, vol. 10 no. 1
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 21 June 2013

Iwan Meier, Yves Bozec and Claude Laurin

The objective of this study is to test whether financial flexibility has value. Using the current financial crisis, the authors investigate whether firms that built up financial…

2359

Abstract

Purpose

The objective of this study is to test whether financial flexibility has value. Using the current financial crisis, the authors investigate whether firms that built up financial flexibility over the years preceding the crisis yield superior performance during the financial crisis.

Design/methodology/approach

Financial flexibility is measured along the following dimensions: cash and cash equivalents, debt (short‐term and total) and net debt. These proxies are measured as an average over the five years prior to the crisis, from September 2002 to August 2007. Firms are then sorted into ten portfolios and monthly stock returns for each portfolio are evaluated over the crisis period from September 2007 to March 2010.

Findings

The authors' results show that high pre‐crisis levels of cash do not seem to have a positive impact on firm value during the crisis. However, the results provide evidence that high pre‐crisis levels of debt had a negative impact on firm value during the latest financial crisis, supporting the hypothesis that financial flexibility has value.

Originality/value

The originality of the authors' approach is to evaluate the value of financial flexibility during a financial crisis. The recent financial crisis offers an ideal test case to evaluate whether financial flexibility has indeed value for the firm.

Details

International Journal of Commerce and Management, vol. 23 no. 2
Type: Research Article
ISSN: 1056-9219

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