When Will Controlling Shareholder Expropriate Investors? Cash Flows Right and Investment Opportunity Perspective

29 Pages Posted: 11 May 2003

See all articles by Konan Chan

Konan Chan

National Chengchi Unversity (NCCU) - Finance

Shing-yang Hu

National Taiwan University - Department of Finance

Yan-Zhi Wang

affiliation not provided to SSRN

Abstract

In this paper, we examine the relationship among cash flow rights, investment opportunities and firm values. We find that the opportunities to invest positive NPV projects will eliminate the positive effect of cash flow rights on firm values. However, when cash flow rights are relatively low, investment opportunities will not affect the positive relationship between cash flow rights and firm values. On the other hand, when cash flow rights are relatively high, cash flow rights do not influence firm values given the investment opportunities. As a result, the impact of investment opportunities on the cash flow right effect depends on the level of cash flow rights. These results suggest a non-linear relationship between cash flow right of the controlling shareholder and firm valuation.

JEL Classification: G34

Suggested Citation

Chan, Konan and Hu, Shing-yang and Wang, Yan-Zhi, When Will Controlling Shareholder Expropriate Investors? Cash Flows Right and Investment Opportunity Perspective. Available at SSRN: https://ssrn.com/abstract=392003 or http://dx.doi.org/10.2139/ssrn.392003

Konan Chan (Contact Author)

National Chengchi Unversity (NCCU) - Finance ( email )

No. 64, Chih-Nan Road
Section 2
Taipei, 11623
Taiwan
+886-2-29393091 ext 81239 (Phone)

Shing-yang Hu

National Taiwan University - Department of Finance ( email )

Room 715, School of Management
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Taipei
Taiwan
+886 2 33661085 (Phone)
+886 2 23661299 (Fax)

Yan-Zhi Wang

affiliation not provided to SSRN

No Address Available

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