Level of Cash Flow Rights of the Ultimate Owner on Value Relevance of Earnings Information of Pyramid Structure Firms

20 Pages Posted: 8 Jan 2013

See all articles by Irfah Najihah Basir Malan

Irfah Najihah Basir Malan

Universiti Teknologi MARA

Norhana Salamudin

Universiti Teknologi MARA (UiTM)

Noryati Ahmad

Universiti Teknologi MARA (UiTM)

Date Written: November 19, 2012

Abstract

The objective of this study is to ascertain whether the higher level of cash flow rights (CFR) in the hand of ultimate owner help to improve the value relevance of earnings information in pyramid structure firms. The separation of cash flow rights (CFR) and control rights (CR) in pyramid structure firms has entrenched the ultimate owner and provide them with opportunities to manipulate earnings information, which in turn reduce the value relevance of the earnings information reported. This study hypothesizes that the higher level of cash flow rights (CFR) in pyramid structure identified will help to reduce the agency problem between ultimate owner and minority shareholder by reducing the opportunity of ultimate owner to manipulate earnings information, which will increase the value relevance of earnings information in pyramid structure firms. The sample of this study consists of pyramid structure firms in Malaysia for the period of 1990 to 2010, where the identity of the ultimate owner is pyramidal ownership. Earnings return model with the interaction between earnings information reported by pyramid structure firms and the level of cash flow rights (CFR) of ultimate owner is provided to show the effect on the earnings-return relationship in an attempt to measure the value relevance of earnings information reported. Positive earnings-return relationship and higher adjusted R2 indicate that earnings information is value relevant and vice-versa. Using Panel Generalized Least Square (GLS) estimation, the results show that the presence of higher level of cash flow rights (CFR) in pyramid structure is significant to minimize and mitigate the negative effects of the structure based on higher adjusted R2 reported within positive earnings-return relationship.

JEL Classification: G32, G34

Suggested Citation

Basir Malan, Irfah Najihah and Salamudin, Norhana and Ahmad, Noryati, Level of Cash Flow Rights of the Ultimate Owner on Value Relevance of Earnings Information of Pyramid Structure Firms (November 19, 2012). Proceedings of 19th International Business Research Conference, 2012. Available at SSRN: https://ssrn.com/abstract=2197653 or http://dx.doi.org/10.2139/ssrn.2197653

Irfah Najihah Basir Malan (Contact Author)

Universiti Teknologi MARA ( email )

Arshad Ayub Graduate Business School
Faculty of Business Management
Shah Alam, Selangor 40450
Malaysia

Norhana Salamudin

Universiti Teknologi MARA (UiTM)

Noryati Ahmad

Universiti Teknologi MARA (UiTM) ( email )

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
122
Abstract Views
834
rank
238,627
PlumX Metrics