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- Type of Document: M.Sc. Thesis
- Language: Farsi
- Document No: 56972 (44)
- University: Sharif University of Technology
- Department: Management and Economics
- Advisor(s): Ebrahimnejad, Ali
- Abstract:
- Objective: Business groups that create pyramidal ownership structures are a common form of corporate ownership in developing countries such as India, Chile, and Iran. These groups, along with the benefits they create, separate voting rights from cash flow rights; As a result, the ultimate owner will control them while having a small share of the cash flows of the companies in the lower layers of the group. This phenomenon provides tunneling motivation for controlling owners; incentivizing them to transfer resources and assets of their subsidiary companies (transferring resources from companies with less cash flow rights to companies with more cash flow rights) to gain private benefits at the expense of other non-controlling shareholders. This research seeks to identify tunneling in business groups in Iran. Having established evidence of tunneling, the tunneling direction will be checked; That is, it will be determined which of the member companies will be the targets of tunneling and which ones will benefit the most from tunneling. Methods: Using ownership data of listed companies during the years 1392 to 1398, we first identify business groups in Iran, and this identification is done at three different ownership thresholds (minimum amount of ownership to have control over the company), namely 20, 25, and 30 percent. We then consider changes that occur in the profitability of each industry as a source of shock that affects the profitability of companies in that industry. By comparing the reaction of independent companies and members of business groups to industry shocks, tunneling and its direction will be tested. Results: At all three ownership threshold levels, at least 40% of the companies investigated in this research are affiliated with business groups. We find evidence of tunneling among business groups, such that companies located in the lower layers of business groups are targeted for tunneling, and the profits are tunnelled towards the ultimate owners of the business groups. Conclusion: The wedge between voting rights and the cash flow rights due to the pyramidal structure of business groups provides incentives for tunneling by the ultimate owners. This comes at the expense of a wealth tranfer from the minority shareholders and for the private benefits of controlling owners of the business groups
- Keywords:
- Business Group ; Tunneling ; Pyramidal Ownership Structure ; Internal Capital Market ; Capital Market
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