Price reaction to rights issue announcements of family firms

  • 381 Views
  • 204 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

This study examines the effect of family control on the price reaction to rights issue announcements of publicly listed firms in Indonesia during the period of 2005–2018. The study uses agency theory, which discusses the conflict of interest between controlling/majority and non-controlling/minority shareholders. The results show that the price reaction to the right issue announcements for publicly listed firms in Indonesia is statistically significantly negative. The mean of cumulative abnormal returns (CAR) falls between –1.40% (for the Day 0 window period) and –3,43% (for the –5 to +5 window period). Further examination indicates that family control is associated with a more negative price reaction to these rights issue announcements. Specifically, for rights issue announcements of family firms, the mean cumulative abnormal returns (CAR) fall between –1,98% at announcement day (Day 0) and –5,23% for the event window period (–5 to +5). Meanwhile, for rights issue announcements of non-family firms, the current study found statistically insignificant price reactions to rights issue announcements for all the event window periods. These findings suggest that investors perceive higher agency problems among family firms where the family controlling shareholders tend to misuse and tunnel the rights issue funds for their own private benefit.

view full abstract hide full abstract
    • Table 1. Number of rights issues in Indonesia
    • Table 2. Cumulative abnormal returns around rights issue announcements: All firms
    • Table 3. Cumulative abnormal returns around rights issue announcements: Family firms
    • Table 4. Cumulative abnormal returns around rights issue announcements: Non-family firms
    • Conceptualization
      Lukas Setia-Atmaja
    • Data curation
      Lukas Setia-Atmaja
    • Formal Analysis
      Lukas Setia-Atmaja, Henry Suthiono
    • Methodology
      Lukas Setia-Atmaja, Henry Suthiono
    • Supervision
      Lukas Setia-Atmaja
    • Validation
      Lukas Setia-Atmaja
    • Writing – original draft
      Lukas Setia-Atmaja, Henry Suthiono
    • Writing – review & editing
      Lukas Setia-Atmaja
    • Project administration
      Henry Suthiono
    • Visualization
      Henry Suthiono
Related Articles

  • The impact of family involvement in business on capital structure decisions: a literature review

    Amr Ahmed MoussaORCID , Khairy Elgiziry doi: http://dx.doi.org/10.21511/imfi.16(1).2019.20
    Investment Management and Financial Innovations Volume 16, 2019         Issue #1         pp. 258-266 Views: 1749 Downloads: 366 TO CITE АНОТАЦІЯ

    Family-controlled firms are a unique form of business because of the special nature of its ownership structure, management style, and financing needs. Moreover, these firms face difficulty in achieving a balanced mix of available financing alternatives (i.e., debt and equity), and this mix has a direct impact on the firms’ profitability, risk, and value. Therefore, the purpose of this study is to review the literature on how family involvement in business via ownership, management, and control affects capital structure decisions. The review showed that in a comparison with nonfamily businesses, family-controlled firms on average have higher debt levels. Additionally, family ownership is positively associated with debt financing, and the participation of family members in a firm’s top management leads to an increase in the firm’s overall debt level. Insights generated from the current study highlight the critical influence of family involvement in business on key financial policies such as capital structure decisions.

  • The impact of free cash flow, equity concentration and agency costs on firm’s profitability

    Haitham Nobanee , Jaya Abraham doi: http://dx.doi.org/10.21511/imfi.14(2).2017.02
    Investment Management and Financial Innovations Volume 14, 2017         Issue #2         pp. 19-26 Views: 1412 Downloads: 945 TO CITE АНОТАЦІЯ

    This paper examines how free cash flow and equity concentration are associated with agency costs, and how they influence the profitability of insurance firms listed on the Saudi Stock Market. The results indicate that equity concentration has no significant impact on agency costs, free cash flow has no significant impact on agency costs and agency costs have no significant impact on firm’s profitability. The findings of this study do not show any evidence to support the agency theory among insurance firms listed on the Saudi Stock Market.

  • Family firms, risk-taking and financial distress

    Pietro Gottardo , Anna Maria Moisello doi: http://dx.doi.org/10.21511/ppm.15(2-1).2017.01
    Problems and Perspectives in Management Volume 15, 2017         Issue #2 (cont. 1)         pp. 168-177 Views: 1215 Downloads: 534 TO CITE АНОТАЦІЯ

    The authors investigate the question of whet her qualitative characteristics are likely to explain the survival of family firms in case of financial distress and whether these variables improve the explanatory power of quantitative variables in clarifying the different probability of distress between family and non-family firms. They focus their attention on the impact of the controlling owner and, using the Socioemotional Wealth theory (SEW), study the role of the family involvement in mitigating or accentuating the likelihood of distress. Using a dataset of 1,137 Italian family and non-family firms during 2004–2013, the authors found that family firms are significantly less likely to incur distress than non-family firms. The board dimension and the number of family members on board affect the probability of distress even controlling for some firm risk characteristics such as beta and ROA volatility, and there is also evidence of a gender mitigating effect in case of a female CEO.

Download Preview
Close
Investment Management and Financial Innovations
Investment Management and Financial Innovations