THE EFFECT OF CASH FLOW RIGHTS, CONTROL RIGHTS AND CASH FLOW RIGHT LEVERAGE ON COMPANY VALUES
The expropriation of minority shareholders by controlling shareholders is the principal agency conflict in concentrated ownership of public companies. This expropriation arises when there is a separation of cash flow rights and control rights. Separation of cash flow rights and control rights is carried out through a pyramid and cross-ownership structure. The concept of ultimate ownership is used to identify such separation. The implications of separating cash flow rights and control rights are tested on firm value. By using a sample of public companies listed on the JSE for the period 2016 to 2019, empirical evidence shows that cash flow rights and control rights do not go together but have different implications. The concentration of cash flow rights is an incentive to avoid expropriation. This can be seen from the positive influence of cash flow rights on firm value. Conversely, the concentration of control rights is an incentive to obtain private benefits through expropriation. This is supported by the negative effect of control rights on firm value. When control rights exceed cash flow rights, the controlling shareholder's incentive to expropriate also occurs with the existence of a negative influence between the leverage of cash flow rights on firm value.
immediate ownership, ultimate ownership, cash flow rights, control rights, cash flow rights leverage, firm value, expropriation.