The Moderating Effect of Ownership Concentration

1. The Moderating Effect of Ownership Concentration Reportor Lin Yuting ID 16720858 The Effect of Corporate Social Performance on Financial Performance:

2. 2 4 6 1 5 3 Abstract Research background Hypotheses Contribution Contents Research design & Data Empirical results & Conclusions

3. The purpose of this study is to extend prior research on this topic by investigating whether the impact of ownership concentration moderates the link between corporate social performance (CSP) and financial performance (FP). This study uses a set of unique, hand-collected pollution control data to measure CSP, based on a sample of Taiwanese listed companies during the period from 1996 to 2006. The results of the empirical analysis provide firm support for the idea that the divergence between control rights and the cash flow rights of controlling owners negatively moderates the link between social and short- and long-run FP. Abstract

4. An association between corporate social performance1 (CSP) and financial performance (FP) has gained enthusiastic research interest (McGuire et al.1988). Some studies have found a negative relationship (Gollop & Roberts 1983; Smith & Sims 1985). Other studies have found a positive relationship (Simpson & Kohers 2002; Chien & Peng 2012; Servaes & Tamayo 2013). However, still others have reported no relationship at all (Seifert et al. 2003; Soana 2011). While some attention has been paid to the association between CSP and FP, the impact of corporate governance on CSP and FP has received even less attention, and there have been relatively few empirical studies examining the impact of ownership concentration on the link between CSP and FP (Jo and Harjoto 2011). Research background

5. 1 2 3 The study focus on both short-term and long-term FP. This measurement may prevent the conflicting results shown in prior studies regarding the association between CSP and short-term FP. The study is an attempt to develop an appropriate statistical method that applies factor analysis to integrate different FP measures into a single index, such as ROA, ROE, EPS, CFA. This approach will strongly support the premise that an aggregated indicator prevents the conflicting results characteristic of different financial indicators. The study is an attempt to shed light on the mixed results of previous studies related to the CSP–FP link by considering the control–cash flow divergence in emerging markets. Contribution

6. Hypotheses The ownership concentration of firms exacerbates agency costs (the convergence-of-interests hypothesis and the entrenchment hypothesis) and decreases firm value (Claessens et al. 2002). Decisions in the area of CSP are likely to reflect both high information asymmetry and low programmability (Deckop et al. 2006). Asymmetric information about CSP allows CEOs to hide the more practical motivations behind their CSR activities although they may perceive that many external stakeholders view CSR activity more favorably(McWilliams et al.,2006). Alternatively, the extraction of private control benefits, if detected, is likely to invite external intervention by minority shareholders, analysts, stock exchanges, or regulators. Thus, Author proposed that control– cash flow divergence increases the cost of monitoring and thus enhances agents’ opportunities to pursue self-interest at the expense of principals. And it might serve as an important moderator on the link between CSP and FP.

7. 1 2 Control–cash flow divergence negatively moderates the relationship between corporate social performance and long-term financial performance. Control–cash flow divergence negatively moderates the relationship between corporate social performance and short-term financial performance. Hypotheses

8. Framework Shot-run CFP CSP Long-run CFP H1(-) H2(-) Control–cash flow divergence

9. Data & Model Sample 1996–2006 Taiwan’s listed companies in five highly polluting industries(cement, plastics, chemicals, paper and pulp, iron and steel) Data Source The ultimate control and ownership structure company prospectuses Pollution control investments the annual reports Financial variable data Taiwan Economic Journal (TEJ) database 

10. Definition of variables

11. Descriptive statistics & Pearson correlations ***, **, and * represent significance at the 1, 5, and 10 % levels

12. Empirical results

13. Robustness Tests

14. Robustness Tests

15. 1 2 There exists a positive relationship between CSP and long-run FP. However, there is found to be a significant inverse function of control–cash flow divergence on the CSP and long-run FP relationship. A weak relationship between CSP and short-run FP and control–cash flow divergence negatively moderates the link between CSP and short-term FP. Conclusions

16. THANKS！