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Multiple agency perspective, family control, and private information abuse in an emerging economy

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Abstract

Using a comprehensive sample of listed companies in Hong Kong this paper investigates how family control affects private information abuses and firm performance in emerging economies. We combine research on stock market microstructure with more recent studies of multiple agency perspectives and argue that family ownership and control over the board increases the risk of private information abuse. This, in turn, has a negative impact on stock market performance. Family control is associated with an incentive to distort information disclosure to minority shareholders and obtain private benefits of control. However, the multiple agency roles of controlling families may have different governance properties in terms of investors’ perceptions of private information abuse. These findings contribute to our understanding of the conflicting evidence on the governance role of family control within a multiple agency perspective.

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Notes

  1. Designated market makers are also known as specialists, who act as the official market maker for a given security. In return for (1) providing a required amount of liquidity to the security’s market, (2) taking the other side of trades when there are short-term buy-and-sell-side imbalances in customer orders, and (3) attempting to prevent excess volatility, the specialists are granted various informational and trade execution advantages. In the United States, the New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) have a single exchange member as the specialist. Other US exchanges, most prominently the NASDAQ Stock Exchange, employ several competing official market makers in a security. On the London Stock Exchange (LSE) there are official market makers for many securities (but not for shares in the largest and most heavily traded companies, which instead use an automated system called TradElect). Most other stock exchanges including HKEX operate on a matched bargain or order driven basis. In such a system there are no designated or official market makers.

  2. For example, market makers protect themselves from information asymmetry by simultaneously manipulating both the quoted bid and ask prices along with the quoted depths associated with those prices. Unless research design allows for the simultaneous choice of depths, the spread-based analyses are incomplete and difficult to interpret. For more detailed discussion, see Lee, Mucklow, & Ready (1994).

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Authors and Affiliations

  1. Sir John Cass Business School, City University London, 106 Bunhill Row, London, EC1Y 8TZ, UK

    Igor Filatotchev

  2. Economics University of Vienna, Vienna, Austria

    Igor Filatotchev

  3. Newcastle Business School, Northumbria University, Newcastle Upon Tyne, NE1 8ST, UK

    Xiaoxiang Zhang

  4. Department of Management, King’s College London, London, UK

    Jenifer Piesse

  5. University of Stellenbosch, Stellenbosch, South Africa

    Jenifer Piesse

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  1. Igor Filatotchev
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  2. Xiaoxiang Zhang
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Correspondence to Igor Filatotchev.

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Filatotchev, I., Zhang, X. & Piesse, J. Multiple agency perspective, family control, and private information abuse in an emerging economy. Asia Pac J Manag 28, 69–93 (2011). https://doi.org/10.1007/s10490-010-9220-x

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