تقارن و اینترلاک شرکتی در بازار در حال ظهور
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|13596||2009||23 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Financial Economics, Volume 92, Issue 2, May 2009, Pages 182–204
Stock price synchronicity has been attributed to poor corporate governance and a lack of firm-level transparency. This paper investigates the association between different kinds of firm interlocks, control groups, and synchronicity in Chile. A unique data set containing equity cross-holdings, common individual owners, and director interlocks is used to map out firm ties and control groups. While there is a correlation between synchronicity and share ownership and equity ties, synchronicity is more strongly correlated with interlocking directorates. The presence of share directors is associated with either reduced firm-level transparency or increased correlation in firm fundamentals—due, for example, to joint resource allocation across the firms.
Synchronicity in returns data, controlling for correlation in firm fundamentals, is attributed to blurred boundaries between firms, reducing the firm-specific information incorporated in stock prices (Barberis, Shleifer, and Wurgler, 2005). Morck, Yeung, and Yu (2000) demonstrate how firms’ returns are more synchronous in emerging economies than in developed economies. They suggest that the nature of relatively opaque activities within control pyramids contributes to synchronicity. Jin and Myers (2006) develop a model where synchronicity is a result of poor investor protection and a lack of transparency. Common firm ownership, family control, business groups, and other means of exercising joint control over firm activities have recently attracted considerable attention in the finance and economics literature. La Porta, Lopez-de-Silanes, and Shleifer (1999) document the worldwide prevalence of jointly owned and controlled firms, and several theoretical and empirical papers examine the phenomenon of tunneling within groups, as described in Johnson, La Porta, Lopez-de-Silanes, and Shleifer (2000). Khanna and Yafeh (2007) discuss the importance of diversified business groups in emerging markets and suggest that, in some countries at least, groups are a response to information asymmetry and institutional voids. Morck and Nakamura (2007) describe how in the presence of network externalities and potential hold-up problems, coordination of activities across firms serves to avoid the market failures that prevent industrial growth. In this way, joint control can facilitate a “big push” of the kind described by Murphy, Shleifer, and Vishny (1989) within a privately owned economy. Joint control across firms is the key mechanism through which coordination is achieved in these models. Much of the literature has focused on equity interlocks and ownership pyramids as the channel through which joint control is exercised, separating control from ownership in the case of large equity pyramids. The literature also demonstrates that firms are often tied in other ways, such as family ties and director interlocks which, while potentially less formal, are a frequently observed characteristic of groups in emerging markets. It seems reasonable to assert that when a particular individual, or the same family, is involved in the management of two or more firms, the coordination across those firms is more straightforward and potential hold-up mitigated. This assertion relates to the literature on power relationships and capital allocation. Rajan and Zingales (1998) suggest that relationships can substitute for formal contracts when capital is scarce relative to investment opportunities, and note that relationship-based systems suppress the price mechanism. The goal of this paper is to investigate the relation between stock price synchronicity and joint control of firm activities. Following the literature on groups in emerging markets, we acknowledge that control can be exercised through various channels. We use a detailed data set on Chilean firms in 1996. To our knowledge, the data set is unique in a developing country setting as it contains information on the extent of equity ties, the names of common individual owners, and the names of common individual directors for pairs of a large number of listed and unlisted firms. The Santiago stock exchange had 270 listings during 1996, 52 of which were secondary listings. Our data on individual directors and owners include the 457 firms that were monitored by the financial regulatory authority, of which listed firms are a subset. We hence have a more comprehensive view of direct and indirect measures of joint control throughout the economy since the data allow us to map out ties between a large number of firms. We construct several measures of the extent of firm-pair returns synchronicity and then test which types of ties are associated with increased synchronicity.1 The firm-pair data also allow us to distinguish between groups of firms tied to each other through common ownership and groups tied through shared directors. Since our goal is to investigate the different channels through which joint control can be exercised, we map the Chilean firms in our data set into three types of networks within which all firms are either jointly owned or managed. Network membership is defined in turn by equity ties, individual ownership ties, and then by director interlocks. For the equity ties definition, we do not take a stand on the extent of equity holding required for a firm to exert control. Since the mapping process reveals several structures where hierarchy levels are ambiguous, we use the more general phrase “equity network” rather than “equity pyramid” to refer to these mappings. Membership of equity pyramids, as typically defined, is identified in our process but not the relative position of each firm in the pyramid. Using the network affiliations, we form firm-pair-level indicator variables telling us whether both firms in a pair are members of the same network. The differently defined networks reveal disparate groupings of firms within the economy. That is, pairs of firms in the same equity network can be in different director networks or owner networks, or in no individual level network, and vice versa. The data on the extent of the ties of each kind between a pair of firms, together with the variables indicating whether both firms are members of a common network, are the key independent variables under analysis. Since an observation in our data set comprises a pair of firms, the errors are potentially correlated across pairs due to unobservable firm effects. We address this problem by adopting the non-parametric bootstrapping estimation method described in Section 4 to determine the significance of estimated coefficients. We also make an adjustment for long-run trends by detrending the firm-level returns data. If two firms tied to each other through equity ties, ownership, or directorship interlocks are more likely to share an overall trend for some unobserved reason, using data that include these trends would lead us to overestimate the degree of synchronicity attributable to the effects of the ties. There are reasons why the presence of an interlock could cause firms’ fundamentals to be correlated, such as the increased likelihood of a supplier–customer relationship. There are also other reasons why any two firms’ returns could be correlated regardless of whether a tie exists, but independently also make a tie more likely. For example, two firms may use the same inputs, or operate in the same geographic market. To attempt to take account of the fact that jointly controlled firms are more likely to share fundamentals even if the tie were not to exist, we control for common industry effects. We also attempt to control for synchronicity due to anticipated dividend flows from equity holdings; this adjustment is described in the Appendix. We recognize that further unobserved factors could be associated with both interfirm ties and synchronicity. There is relatively little change in the nature of shared ownership and director interlocks over time, providing little variation to use as part of our identification strategy. We do, however, know the business group affiliation of each firm in the data set for 1996. Business groups are widely recognized and well monitored entities within the Chilean economy (Khanna and Yafeh, 2007) and group membership has been shown to impact firm performance (Khanna and Palepu, 2000). We assert that common group membership could well be correlated with unobservable factors related to synchronicity and to equity, owner, and director interlocks. By controlling for group membership, and then also looking within groups, we relate the synchronicity above that which is attributable to shared group membership and associated unobservables to the ties that are the focus of this paper. Membership of the same business group is positively correlated with pairwise synchronicity, suggesting that market participants view these entities as relevant. Our key results about the significant role played by director interlocks are robust to controlling for common business group affiliation. Our results show that the presence of equity interlocks, shared individual owners, and director interlocks are all significantly correlated with increased returns synchronicity. This is consistent with the idea that the market views each tie as a mechanism through which joint control is being exercised. However, when all three pairwise measures are included, only the extent of director interlocks retains significance. Controlling for equity interlocks, common individual owners, and shared industry effects, we find that if both firms share half of their directors, the returns of the two firms are predicted to move in the same direction 10% more often than if the two firms had no directors in common. In addition, the returns of the two firms are predicted to be 20 percentage points more correlated than when there are no director interlocks. Turning to the role of control groups of various kinds, pairs of firms in the same equity network are indeed more likely to exhibit synchronous returns. The same is true of pairs of firms in networks of shared individual ownership and shared directorates. When all three network variables are included, membership in the same director network is most strongly associated with synchronicity. Returns of pairs of firms in the same director network are 7% more likely to move in the same direction each week and have a pairwise correlation coefficient that is 16 percentage points higher than returns for pairs of firms in different networks or in no director network, controlling for membership of the same equity network, individual owner network, and a common industry effect. While the relevance of ownership ties in developing economies has been examined at some length in the literature on tunneling, the empirical work on the effects of director interlocks has for the most part been conducted in a U.S. context. Sociologists have studied how director interlocks can act as interorganizational coordination devices in the presence of environmental uncertainty (Burt, 1983; Mizruchi, 1996). Financial economists have examined the relation between CEO compensation, entrenchment, and mutually interlocking boards (Fich and White, 2003). Historically, in the United States, interlocks have been associated with collusive practices and higher shared profits, in response to which Appendix A of the Clayton Act of 1914 outlawed director interlocks between competing firms. In the United States and worldwide, interlocking directors have been seen as playing a monitoring role, with indebted firms frequently appointing bank representatives to their boards. New directorships for established business leaders are seen as a way to confer legitimacy on a firm, or as a means of career advancement for the individuals concerned (Zajac, 1988), or a byproduct of social elite entrenchment (Mills, 1956). These studies have differing implications and predictions for whether shared directors help or hinder firm performance, but all introduce channels through which firm returns become dependent.2 Our results demonstrate that the presence of mechanisms permitting joint control across firms is indeed correlated with increased returns synchronicity. We infer that shared firm ownership and management is considered to be relevant by the market, perhaps because it allows coordination of firm activities. It is particularly interesting that director interlocks are strongly associated with synchronicity. We might speculate that comovement associated with equity ties reflects coordination in the form of earnings tunneling for the benefit of an entrenched controlling shareholder (Morck, Wolfenzon, and Yeung, 2005) or is simply due to anticipated dividend flows. Morck and Nakamura (2007) point out that tunneling for cross-subsidization purposes could well be welfare increasing and that while minority shareholders could perceive this as poor governance, the anticipated level of tunneling will be incorporated into stock prices. It is more plausible within-director networks that synchronicity, after controlling for equity ties, is due to the effects of the joint control of activities such as efficient internal resource allocation, since directors are making day-to-day operating decisions within the firms. In the next section we describe the ways in which firms are tied in our data and define our key independent variables. Section 3 describes the returns data and synchronicity measures that make up our dependent variables. Section 4 sets out the estimation methodology employed, and Section 5 presents our main results. In Section 6, we discuss several robustness tests of the significant role played by director interlocks. Section 7 concludes.
نتیجه گیری انگلیسی
Our results establish that marketwide synchronicity can be attributed at least in part to increased synchronicity between pairs of firms under joint control. The findings suggest that joint control through director networks plays as much, if not more, of a role as equity and individual owner interlocks. Firms that have interlocking directorates or are part of the same network of director interlocks are particularly likely to have synchronous returns. Controlling for ownership ties, common industry effects, and overall trends in returns, pairs of firms that have one or more directors in common are significantly more likely to have returns that move in the same direction in any one week and to have a higher correlation coefficient. Pairs of firms in the same business group are also more likely to have synchronous returns, and director interlocks are shown to be positively associated with synchronicity even when controlling for common business group effects. While director ties continue to play a role within-equity networks and business groups, equity ties are not significantly associated with increased synchronicity within-business groups. This provides further evidence that the shared role played by individual directors is particularly important in the Chilean market. Limitations of our study include that we do not examine any specific predictions for asymmetric spillovers between firms in the presence of an equity tie. For example, anticipated earnings tunneling would give rise to spillovers from a firm with low cash flow rights to a firm with larger controlling shareholder cash flow rights and not vice versa. The symmetric pairwise measures of synchronicity employed in this paper could mask the impact of these effects on firm returns. Second, we do not treat equity ties that constitute a controlling stake differently from other equity ties. Other corporate governance papers focus on firms with an obvious controlling shareholder. For example, the data used in La Porta, Lopez-de-Silanes, Shleifer, and Vishny (2002) include firms where a shareholder controls more than 10% of firm votes. Last, it is important to note that our findings are specific to Chile in the mid-1990s, facilitated by access to an unusually detailed data set. It remains to be seen whether the results presented here generalize to other countries and other time periods. Our results are consistent with previous studies which suggest that synchronicity at the market level is due to blurred firm boundaries. Other empirical papers on group effects, such as Bertrand, Mehta, and Mullainathan (2002) in their study of Indian business groups, have focused on groups whose boundaries are defined by ownership ties. Bertrand, Johnson, Sampthantharak, and Schoar (2004) demonstrate how familial relationships have an impact on family business performance, and we add to the literature on how relationships and social ties are viewed as important in capital markets. Networks defined by shared directorships map out one type of relationship-based system of the type described by Rajan and Zingales (1998). The significant association between director interlocks and synchronicity could indicate that director interlocks facilitate coordination across firms, serving to reduce hold-up problems and achieve faster growth as described in Morck and Nakamura (2007). The ways and means by which overlapping directors achieve coordination is an open question and a topic for future research.