The Effect of Corporate Governance and Ownership Structure On Firm Value in Thailand

Form versus substance: The effect of ownership structure
and corporate governance on rm value in Thailand

J. Thomas Connelly
a
, Piman Limpaphayom
b,
, Nandu J. Nagarajan
c
a
Department of Banking and Finance, Faculty of Commerce and Accountancy, Phyathai Road, Chulalongkorn University, Bangkok 10330, Thailand
b
Portland State University, Sasin Graduate Institute of Business Administration of Chulalongkorn University, USA
c
Joseph M. Katz Graduate School of Business and College of Business Administration, University of Pittsburgh, Mervis Hall, Pittsburgh, PA 15260, USA
a r t i c l e i n f o
Article history:
Received 11 March 2010
Accepted 25 January 2012
Available online 4 February 2012
JEL classication:
G32
G34
Keywords:
Corporate governance
Family ownership
Firm value
Thailand
a b s t r a c t
We examine the relation between the quality of corporate governance practices and rm value for Thai
rms, which often have complex ownership structures. We develop a comprehensive measure of corpo-
rate governance and show that, in contrast to conventional measures of corporate governance, our mea-
surement, on average, is positively associated with Tobins q. Furthermore, we nd that q values are lower
for rms that exhibit deviations between cash ow rights and voting rights. We also nd that the value
benets of complying with good corporate governance practices are nullied in the presence of pyra-
midal ownership structures, raising doubts on the effectiveness of governance measures when ownership
structures are not transparent. We conclude that family control of rms through pyramidal ownership
structures can allow rms to seemingly comply with preferred governance practices but also use the con-
trol to their advantage.
2012 Elsevier B.V. All rights reserved.
1. Introduction
In July 1997, the Bank of Thailand discontinued the xed ex-
change rate regime which had been in place for decades. Thailand,
an emerging nation, with a promising economic future, tumbled
into the worst nancial crisis in its history. In the process, Thailand
also dragged many neighboring economies along with it into a re-
gion-wide economic downturn, the likes of which no country in
the region had ever experienced before. Following this crisis, and
its resolution, corporate governance has received considerable
attention from regulators and practitioners in all the AsiaPacic
countries. The main impetus for this heightened attention stems
fromevidence emerging fromthe nancial crisis that the aggressive
nancing practices and poor investment decisions, associated with
the nancial downturn, were a result of poor corporate governance
practices among large public corporations and nancial institutions
in the aficted economies. Consequently, the central governments
of most AsiaPacic nations, along with international organizations
such as the OECD, implemented corporate governance reforms
throughout the region.
1
The effectiveness of these governance re-
forms is an empirical question because business environments in this
region are heterogeneous and Asian companies have many unique
features, the most notable among them being the concentrated
ownership and direct and indirect control exercised by the rms
founding families.
In this paper, we provide empirical evidence on the relation be-
tween control, ownership structure and rm value for all industrial
companies that were publicly traded on the Thai stock exchange in
2005. We nd that Thai family companies developed pyramidal
ownership structures after the nancial crisis of 1997, probably
in response to reductions in their ownership holdings. In particu-
lar, we nd that the governance measures mandated in Thailand,
and subsequently adopted by Thai family rms, are not as effective
in mitigating agency conicts in this new opaque environment as
they have been shown to be in the US. We also develop a corporate
governance index that we show is a more effective measure of
0378-4266/$ - see front matter 2012 Elsevier B.V. All rights reserved.
doi:10.1016/j.jbankn.2012.01.017
Corresponding author. Tel.: +1 503 725 9991; fax: +1 503 725 5850.
E-mail addresses: thomas@acc.chula.ac.th (J.T. Connelly), piman@pdx.edu (P.
Limpaphayom), nagaraja@katz.pitt.edu (N.J. Nagarajan).
1
There is recent empirical evidence of an association between adoption of
internationally accepted corporate governance practices and rm valuation in these
AsiaPacic economies. See, for example Cheung et al. (2010) who examine large
Chinese rms, Black et al. (2006a, 2009) for example Korean rms, and Cheung et al.
(2007, 2011) for Hong Kong rms.
Journal of Banking & Finance 36 (2012) 17221743
Contents lists available at SciVerse ScienceDirect
Journal of Banking & Finance
j our nal homepage: www. el sevi er . com/ l ocat e/ j bf
compliance with good governance practices in the Thai business
context than other, conventional measures of effective governance.
However, even this governance index appears to be associated
with value only when companies do not have a pyramidal owner-
ship structure, suggesting that Thai families are able to manipulate
governance measures when they have high voting control over
their rms.
Recent anecdotal and research evidence document that family
rms in the US outperform non-family rms.
2
Founding families
have considerable wealth invested in their rms and, thus, have
an incentive to manage the rm in ways that improve value. On
the other hand, families and founders may use their greater control
over decision rights to expropriate wealth from minority share-
holders, resulting in a decrease in value.
3
Family rms in Thailand,
however, operate in a very different environment from that in the
US. Recent empirical research (La Porta et al., 2000b, 2002) pro-
vides evidence that companies with controlling shareholders have
lower valuations in civil law countries, like Thailand, where minor-
ity shareholders are less well protected from expropriation by a
controlling shareholder, compared to valuations in common law
countries, like the US. Mitton (2002) argues that in an environment
where legal protection for outside shareholders may be insufcient,
the rms themselves can pre-commit to not expropriating wealth
from minority shareholders by implementing appropriate corporate
governance measures. For instance, such family rms could in-
crease the number of independent directors on the board. The fore-
going argument suggests that implementing appropriate
governance measures may be particularly important in East Asian
countries, where families commonly tend to own controlling inter-
ests in rms and legal protections for minority shareholder rights
are limited. The issues that emerge are twofold. First, what mea-
sures of governance are appropriate benchmarks in an environment
where implementation of good governance practices is hard to
measure and monitor? Second, is compliance with prescribed mea-
sures of governance effectiveness sufcient to mitigate agency
problems between majority and minority shareholders in these
East Asian family rms or do pyramidal ownership structures and
extra-contractual arrangements between family members and
directors allow subversion and manipulation of these governance
measures, rendering them ineffective proxies for value creation?
4
In other words, is the form of governance measures adopted by
these rms consistent with the substance of what such measures
are intended to accomplish?
Previous studies on governance arrangements in Thai family
rms have generally focused on the period before the Asian nan-
cial crisis in 1997 (Bertrand et al., 2008; Wiwattanakantang, 2001).
Before 1997, founding families held signicant proportions of the
outstanding shares and had full control over their businesses.
Consequently, these families may have had no need to employ
complicated ownership structures, such as pyramids. In corrobora-
tion, Claessens et al. (2000) document that Thai companies rarely
employed a pyramidal ownership structure prior to 1997. How-
ever, recent changes in the characteristics of Thai family rms have
affected the nature and extent of corporate family ownership and
control. Specically, many rms in Thailand experienced nancial
difculties and some went bankrupt following the Asian nancial
crisis (Zhuang et al., 2000). As a result, some of these rms, includ-
ing family rms, had to raise additional capital and restructure
themselves after 1997, which, in turn, led to reductions in family
ownership.
5
More importantly, many publicly traded family rms
have also implemented pyramidal ownership structures, probably
because they wished to counter the dilution in control arising from
reductions in their shareholdings. Based on these considerations,
we expect that family rms in Thailand are no longer the homoge-
neous group of rms with similar characteristics that they were
prior to 1997. In particular, the nature and extent of agency prob-
lems, and corresponding value consequences, can vary across family
rms. Because of these new institutional settings, we expect that our
post-1997 analysis of these family rms can add additional insights
and make a signicant contribution to the literature.
In our analysis, we classify industrial companies that were
publicly traded on the Thai stock exchange in 2005 into four
groups, based on the extent of family ownership and the presence
of pyramidal ownership structures.
6
Of the total sample of 216
rms, we nd that rms with high family ownership are associated
with lower values of Tobins q. In particular, these high family own-
ership rms have an average q value that is lower than the mean q
for low family ownership rms.
7
This difference is not only statis-
tically signicant, but also economically signicant. Past research
conducted on US rms (e.g., Yermack, 1996) has revealed a positive
relation between conventional governance variables, such as board
size and rm value. However, we nd no such relation between
conventional governance variables and q for Thai rms. We conjec-
ture that this lack of association between broad governance mea-
sures and q for our sample rms arises because Thai family rms
only maintain the external trappings of good governance practices,
such as having several directors labeled as independent, while
2
Anderson and Reeb (2003) document superior performance of family-owned
rms among S&P 500 rms, across seven years (19921999). The improved
performance is further increased when a family member holds the CEO position
rather than an outside manager. An article in Business Week (November 10, 2003, p.
100) reports that one-third of the S&P 500 rms have founding families involved in
management and these are the best performers. Villalonga and Amit (2006) and
Perez-Gonzalez (2006) nd that founder-controlled rms are associated with higher
values which decline when these rms are managed by heirs.
3
Demsetz and Lehn (1985) argue that founder or family control may be exercised
because of amenity potential, the non-pecuniary benets that family members gain
from control. However, because this leads to entrenchment, family control may also
be associated with weaker management than that provided by professional managers.
Johnson et al. (1985) nd that positive unexpected returns are associated with the
sudden demise of founder-CEOs and Morck et al. (1988) nd that older rms with
founders present among the management have reduced q values.
4
For instance, Hwang and Kim (2009) provide evidence that social ties between
managers and directors can weaken managerial pay-performance and turnover-
performance sensitivity.
5
As part of restructuring efforts, many families were forced to sell signicant
stakes in their rms. Others sought additional capital through strategic partnerships,
often with foreign companies. The shareholdings of two of the largest commercial
banks in Thailand were drastically restructured as the founding families gave up
signicant portions of their ownership stakes. Non-nancial companies were also
hard-hit. For example, at SHIN, a large stake in the nations largest telecommunication
company, owned by the former Prime Minister of Thailand, was sold to a consortium
of Singaporean investors. BIG C, a large family-owned discount retailer, forged a
business alliance with a foreign retailer by issuing shares to the new partner. NTS, a
family-owned steel maker, merged its steel business into a new company jointly
owned by another conglomerate. The founder of QH, a large real estate development
company, sold a stake to the Government of Singapore Investment Corporation.
6
Bertrand et al. (2008) study a sample of public and private rms using 1996 data,
drawn from 93 Thai family groups. They show that family structure is important to
value creation in Thai companies. Firms with more male heirs end up with sons
having greater control and such rms are associated with lower levels of rm
performance, especially if the founder is dead. Families with more sons show a
greater gap between control and ownership rights. Our study differs in important
ways from theirs because we focus only on publicly traded rms drawn from a period
after the nancial crisis of 1997 when family rms ownership structures were
drastically different. The study by Bertrand et al. (2008) consists of 528 rms, of
which only 94 are publicly traded companies. More importantly, our study is able to
assess the relative importance of control and management on agency costs while
examining the relation between market value and a quantied and detailed
governance index.
7
As anecdotal evidence, Studwell (2007, p. 24) reports, Despite now bullish stock
markets in the region, the billionaires-with their lousy corporate governance and
manipulation of local banks to provide cheap and easy alternative sources of credit-
also have contributed to the worst long-term emerging-market-equity performance
in the world. From 1993-when the rst signicant international portfolio investments
came into Southeast Asian bourses-to the end of 2006, total dollar returns with
dividends reinvested in Thailand and the Philippines were actually negative.
J.T. Connelly et al. / Journal of Banking & Finance 36 (2012) 17221743 1723
subverting the substance of such practices through the inuence of
family ownership and pyramidal control arrangements.
8
To test
this conjecture, we design an in-depth assessment of publicly re-
ported details of governance practices and disclosure, which we
term the Corporate Governance Index (CGI).
9
In regression analyses
using all rms, we show that, unlike conventional governance vari-
ables, the CGI is signicantly associated with q. Further, in regres-
sion analyses with subgroups, we show that the positive
association between CGI and q is driven by family rms without
pyramidal ownership structures. Our results remain robust after
controlling for past performance and the potentially endogenous
relationship between CGI and q through the use of a two-stage
least-squares regression approach.
Overall, our study makes several contributions to the literature.
We document that the nature of family ownership in Thai family
rms changed after the 1997 crisis, facilitating more opaque ways
for families to establish control. Furthermore, we construct and
use a detailed governance index which allows us to establish the
relation among stock ownership, governance and value for Thai
rms. We also provide evidence that, contrary to the ndings for
US companies, conventional governance variables such as board
size and board independence are not associated with value for Thai
family rms. On the other hand, the Corporate Governance Index
(CGI) we construct, to assess the effectiveness of the implementa-
tion of governance practices, is signicantly associated with value
for family rms without pyramidal ownership structures. That is,
our empirical results showthat (1) governance measures that effec-
tively capture the relation with value for Thai family rms have to
be more detailed than conventional measures such as board inde-
pendence and (2) the relation between these more detailed mea-
sures of good corporate governance and rm value is positive and
statistically signicant only for family rms without a pyramidal
ownership structure, suggesting that such complex ownership
structures can subvert and render governance measures ineffective.
In support of this argument, we also nd that the use of a pyramidal
structure negatively affects rm value after controlling for relevant
factors. Our results have implications for governance regulation in
Thailand, namely that the adoption of so called good corporate
governance practices alone is not a guarantee of rm performance.
We organize the remainder of the paper as follows. Section 2
discusses the theory and institutional background for our study
of governance arrangements. The data and empirical methods are
presented in Section 3. Section 4 provides the empirical results
and Section 5 concludes the paper.
2. Theory and institutional background
The Stock Exchange of Thailand (SET) can be characterized as a
retail-driven market, with domestic retail investors conducting the
lions share of trading. Institutional investors make up a smaller,
though growing segment. Overall, Thai companies are mostly
owned by insiders while trading activities are mostly initiated by
small minority investors. Moreover, legal protection for investors
is relatively weak and ownership structures are highly concen-
trated. Taken together, the Thai market provides an interesting set-
ting in which to examine the relation among family ownership,
corporate governance and rm performance.
2.1. Family ownership and rm valuation
Financial economists have long recognized that ownership
structure has an important inuence on value creation and rm
performance (Shleifer and Vishny, 1997). For example, Morck
et al. (1988) nd that, at low levels, managerial ownership is va-
lue-enhancing through the alignment of interests between insiders
and outside shareholders, while at high levels, managerial owner-
ship becomes value destroying through the entrenchment effect.
This type of agency conict is referred to as Type I (between man-
agers and shareholders). For family rms, the agency conicts be-
tween majority shareholders and outside/minority shareholders
(referred to as Type II agency conicts) are more prevalent. Recent
empirical evidence for US rms shows that family rms perform
better than non-family rms (Anderson and Reeb, 2003). US family
rm performance is even stronger when founders manage the rm
(Villalonga and Amit, 2006; Perez-Gonzalez, 2006). Demsetz and
Lehn (1985) argue that, because of their concentrated and undiver-
sied holdings, families have more incentives to minimize agency
conicts and maximize rm value. There is also evidence that fam-
ily ownership leads to long investment horizons and efcient
investment decisions (Stein, 1989; James, 1999).
However, the relation between family ownership and rm per-
formance can be different in a developing economy with relatively
weak legal rights and weak investor protection. This is because, in
such an environment and by virtue of their larger ownership
stakes, families have more opportunities and the power to take
actions that benet themselves at the expense of minority share-
holders (Fama and Jensen, 1983). An examination of a sample of
companies in East Asia reveals that the majority of top managers
in these companies come from controlling families (Claessens
et al., 2000). Lins (2003) nds that, among East Asian rms, rm
value is lower when management control is excessive. Following
this evidence, we expect that Type II agency conicts for many Thai
companies could be quite severe.
2.2. Ownership structure and rm valuation
Recently, corporate nance theorists and corporate governance
researchers have turned their collective attention to the relation
between ownership structure and corporate governance in East
Asian rms. La Porta et al. (2006) argue that securities laws and
enforcement are critical to nancial market development. In fact,
high ownership concentration by insiders is a response to the lack
of legal protection for shareholders (La Porta et al., 1998; hereafter
LLSV). Several prior studies have classied Thailand as a country
with weak legal enforcement and shareholder protection. For exam-
ple, LLSV (1998) rate Thailand fairly low in terms of shareholder
8
According to Stock Exchange of Thailand regulations, Thai companies are required
to have at least ve members on the board of directors, three of whom must be
independent directors. The CEO or top operating executive is permitted to hold the
board chairmanship (Sersansia and Nimmansomboon, 1996). However, Thai boards
often have directors among their members, who are connected, with an afliation to a
related organization (Khantavit et al., 2004; Nam and Nam, 2004). For example, a
director may be an employee of a related company or a creditor nancial institution.
These afliations mean true director independence can be difcult to achieve.
Contributing to this mix is the fact that personal relationships, often spanning
decades, play a strong role in Thai culture. Directors are quite likely to have had
previous business, social, or even high school connections with the top executive.
Directors may also feel beholden to the executive who appointed them to the board
and thus may be hesitant about objecting openly to his policies, which would violate
cultural norms (Nam and Nam, 2004).
9
The composition and construction of the Corporate Governance Index (CGI) are
described on pages 69. The full set of measurements is shown in Appendix. By
corporate governance activities in closely held rms (where Type II agency problems
exist, that is agency conicts between majority shareholders and outside/minority
shareholders), we mean actions and disclosures by the rm that can affect the welfare
of minority shareholders. Such actions could include more transparency regarding
board activities, such as minutes of board meetings, public disclosure of compensa-
tion arrangements for directors, shareholders being allowed to ask questions during
annual general meetings, disclosure of crossholdings and pyramidal holdings, and
prevention of insider trading by controlling shareholders. Similarly governance
activities in widely held rms, in which Type I agency problems, that is agency
conicts between managers and shareholders, are found, would be compensation
arrangements for managers that tie their interests to the shareholders, monitoring of
managerial actions by the directors, and other practices.
1724 J.T. Connelly et al. / Journal of Banking & Finance 36 (2012) 17221743
rights and the rule of law. The same authors (LLSV, 2000a) also
classify Thailand as a low-investor protection country in their
33-country survey of dividend policies around the world.
Given that low protection for minority shareholders is associ-
ated with higher ownership concentrations, it is not surprising that
LLSV (2000b) and Claessens et al. (2000) nd that East Asian rms
have highly concentrated ownership structures, which, in turn,
allows insiders to exercise effective control over their rms.
Although Thai companies have very high ownership concentra-
tions, Claessens et al. (2000) provide evidence that the ratio be-
tween cash ow rights and control rights for Thai rms is close
to one. However, the evidence in Claessens et al. (2000) describes
Thai ownership structures prior to the Asian nancial crisis of
1997. In other words, Thai rms seldom used pyramidal structures
to enhance control before 1997 because family ownership levels
were high and there was no need to do so. Subsequent to the crisis,
many Thai family rms had to dilute their ownership stakes in or-
der to raise additional outside investment. To illustrate this phe-
nomenon, we examine the transformation of a large real estate
company, Quality House, PLC (QH). QH was founded by Anan
Asawaphokin as a construction company in 1983. In 1990, QH be-
gan to engage in both residential and commercial real estate
development.
In 1996, QH would not have been considered to have a pyrami-
dal ownership structure (see Fig. 1). The founder, Anan Asawapho-
kin, owned 15.77% directly plus 6.99% through Land and House
PLC, another large real estate company controlled by the Asawaph-
okin family. Another individual from another well-known family,
Chai Srivikorn, owned 10.11% of the outstanding shares. Unafli-
ated foreign nancial institutions owned a total of 15.02%. Consis-
tent with Claessens et al. (2000), there is little evidence of any
deviation between cash ow rights and voting rights for QH and
many other Thai companies during this pre-1997 period.
In 1997, QH experienced nancial and operating problems.
After the Asian nancial crisis, the Government of Singapore
Investment Corporation became a major shareholder in 2001 with
a 20% holding. By 2005, the ownership structure of QH had become
very complicated. The direct shareholdings in QH by members of
the Asawaphokin family had declined to 7.17%, and the Govern-
ment of Singapore Investment Corporation held 13.23% of the out-
standing shares. However, Anant Asawaphokins shareholdings in
QH, via control of Land and House, increased from 6.99% in 1996
to 23.14%. Two other companies, private rms afliated with the
Asawaphokin family, held a combined 8.86% ownership stake in
QH. The pyramidal structure, now apparent, pushed the ratio
between cash ow rights and voting rights lower than one. The
transition of the control structure of QH is graphically presented
in Fig. 1.
Overall, it appears that in order to maintain control, families
and founders employ more opaque (pyramidal) ownership struc-
tures that allow the owners to exert signicant control even with
lower direct ownership holdings. One potential consequence of
excessively high control is that controlling shareholders are able
to expropriate wealth from minority shareholders. Following the
arguments above, we predict that, for our sample of Thai family
rms, the use of more control through a pyramidal ownership
structure should be detrimental to rm value. In other words,
the presence of deviations between control rights and cash ow
rights should be negatively associated with q.
2.3. Corporate governance and rm performance
Recently, corporate governance researchers have begun to use
composite indexes to assess governance practices, recognizing that
corporate governance mechanisms may serve as complements or as
substitutes for one another. Four studies are notable in this regard.
Gompers et al. (2003), Bebchuk et al. (2009), and Brown and Caylor
(2006) create separate indexes for US rms while Drobetz et al.
(2003) do likewise for German companies. These authors demon-
strate the relation between good corporate governance and rm
value.
10
There are also a number of studies examining the gover-
nance to performance link for rms in emerging markets. Generally,
authors of these studies also nd that better-governed rms are
associated with better performance.
11
Mitton (2002) suggests that in an environment where legal pro-
tection for outside shareholders may be insufcient, rms them-
selves can preclude expropriation of minority shareholders
resources through the use of appropriate corporate governance
measures. Therefore, adoption of appropriate or effective corporate
governance practices is particularly important among closely held
rms in East Asian countries. A further implication of this argument
1996 2005
Land and
House PLC
6.99%
Anan
Asawaphokin
15.77%
Financial
Institutions
15.02%
Chai
Srivikorn
10.11%
QH PLC
Land and
House PLC
23.14%
Asawaphokin
Family
7.17%
Private
Company
8.86%
Government
of Singapore
13.23%
QH PLC
Government
of Singapore
13.23%
Fig. 1. An illustration of the ownership structure changes experienced by publicly traded Thai Family Companies After 1997. The gure shows the transformation of the
ownership structure of QH, a large family-owned real estate company, between 1996 and 2005. The thin arrows indicate the direct shareholdings in QH by the various large
shareholders. The wide arrows show the indirect control by the family over other entities.
10
These types of governance indexes may not be relevant for Thai rms because
they are largely structured to assess the extent of takeover defenses. Hostile takeovers
are infrequent in Thailand and in emerging markets throughout the AsiaPacic
region.
11
Using an internationally accepted benchmark (OECD, 2004), Cheung et al. (2010)
document a positive relation between market valuation and corporate governance
practices among large Chinese rms. Other studies on the relation between a portfolio
of governance measures or index and value include Black et al. (2006a, 2009) for
Korean rms; Doidge et al. (2007), Mitton (2004), Durnev and Kim (2005), and
Klapper and Love (2003) which use the index created by Credit Lyonnaise Securities
Asia (CLSA, 2002); Cheung et al. (2007, 2011) for Hong Kong rms; and Black et al.
(2006b) for Russian rms.
is that if appropriate governance measures, such as internationally
accepted corporate governance practices, were to be adopted by
Thai family rms, they could potentially mitigate any adverse im-
pact of family ownership.
In addition to the changes in the ownership structures of Thai
family rms after 1997, the institutional environment in which
these rms operate has also changed drastically. In particular,
many corporate governance reforms have been implemented in
the post-crisis years through the concerted efforts of many organi-
zations (Limpaphayom and Connelly, 2004). For example, the Stock
Exchange of Thailand (SET) required all rms to have audit com-
mittees comprised entirely of independent directors by 1999. The
SET also established several other guidelines for improving the
quality of corporate governance practices and for conducting
shareholders meetings. In addition, new and updated rules from
the SET, new and revised laws, and increased regulatory oversight
have been at the forefront of the push for improved corporate gov-
ernance. For example, in 1999, the Thai government passed laws
requiring disclosure of related party transactions, asset divesti-
tures, and disclosure of accounting practices that deviated from
generally accepted principles. In 2002, the government passed a
new law which shortened the nancial statement reporting time
from 60 to 45 days after the end of a scal year. In addition to reg-
ulatory reforms, other organizations like the Thai Institute of Direc-
tors Association (Thai IOD), the Thai Investors Association (TIA),
and professional associations for accountants, auditors, and inter-
nal auditors have pushed forward initiatives to improve the quality
of corporate governance practices. Consequently, Thai companies
operate in an environment that is very different from the time be-
fore the Asian nancial crisis.
Although conventional wisdom would suggest that rms con-
forming to mandated governance requirements (e.g., board inde-
pendence) are less likely to experience impairments in value,
there are often extra-contractual relationships between the top
managers and directors that can complicate the situation (Romano,
2005). The number and extent of these relationships in Thai com-
panies can be considerable, stemming from long associations and
personal or family contacts. These extra-contractual relationships
can result in boards, with ostensibly independent directors, being
unable to effectively monitor and control management. One impli-
cation of the foregoing observation is that traditional measures of
board effectiveness, such as board size or board independence,
while effective as measures of corporate governance in the US,
may be inadequate to capture the actual quality of corporate gov-
ernance practices among Thai family rms. Therefore, we predict
that these conventional proxies for effective corporate governance
should exhibit no signicant relation with rmvalue for Thai rms.
In addition, we note that other governance measures commonly
used to evaluate the level of entrenchment of insiders, such as the
GIM index (Gompers et al., 2003) or the E-Index (Bebchuk et al.,
2009) are not applicable to Thai family rms because takeovers
are not common in Thailand and restrictions in shareholder rights
such as staggered boards or supermajority amendments to the
charter are not permitted (Limpaphayom and Connelly, 2004).
However, we expect that more comprehensive and detailed mea-
sures of the quality of corporate governance practices, that go be-
yond supercial conformity to prescribed standards, by capturing
how governance practices are actually implemented, should exhi-
bit a positive relation with value. Furthermore, we predict that the
use of a complex ownership structure, such as a pyramidal struc-
ture, can moderate the relation between the quality of corporate
governance practices and rm value. In particular, we expect that
implementation of prescribed governance standards will have little
effect on corporate value if owners maintain excessive control over
the rm through the use of a pyramidal structure, which allows
them to effectively subvert these governance measures through
indirect means.
Overall, we address the following research questions: First, how
does the quality of corporate governance practices relate to rm
value in Thailand? Second, what is the relation between family
inuence, in the form of ownership or control structures, and rm
value in Thailand? Finally, does family ownership or an enhanced
control structure moderate the relation between the quality of cor-
porate governance practices and rm value? The next section pre-
sents the empirical approach we use to address these questions.
3. Data and methodology
The sample used in this study comprises all industrial compa-
nies traded on the Stock Exchange of Thailand (SET) in 2005. Firms
in the nancial services industry (banks, insurance companies, -
nance and securities companies, listed mutual fund companies,
and property investment funds) are excluded from the sample.
Firms that do not have complete nancial data available for scal
year 2005, newly listed rms, delisted rms, inactive rms, or
rms undergoing nancial rehabilitation or restructuring are also
excluded from the sample. We next eliminate rms where the
majority shareholder is the government or a widely-held domestic
or foreign nancial institution. Lastly, we eliminate rms that are
subsidiaries of foreign corporations.
12
This procedure results in a
sample size of 216 rms. Financial data are obtained from Data-
stream, published by Thomson Financial, with additional nancial
information supplied by the Stock Exchange of Thailand through
the SETSMART data service.
3.1. Identication of family-owned rms
We determine whether or not a sample rm is considered to be
family-owned based on the identity of the shareholders. We use the
SETSMART database, provided by the Stock Exchange of Thailand,
which lists the top ten shareholders of each rm, to identify share
ownership. In addition to shareholding records, we use annual re-
ports and other outside sources to trace share ownership and, thus,
identify family ownership. For direct shareholdings, we count
shareholders with the same surname as the family as well as
shareholders with known familial relationships (relatives, spouse,
children, etc.), even if the last names are different. Many rms in
the sample exhibit indirect shareholdings; that is, shares owned
by investors in a sample rm through another public or pri-
vately-held company. For each rm in the sample, we trace any
indirect ownership of shares upwards through networks of public
and/or private companies. We also add together shares owned by
individual family members or owned by family-afliated rms un-
der family control to nd total family ownership. We classify any
company in the sample, which is part of a family-controlled net-
work, as a family rm.
We begin by classifying rms as high family ownership if the
total family ownership exceeds the median ownership for all rms
(41.2%).
13
The objective of this initial classication of all sample
rms into two groups based on the level of family ownership is to
12
We are interested in the effects of family versus non-family ownership. Thus
government-owned rms are eliminated because a government may pursue public
policy-related objectives through state-owned rms rather than policies designed to
maximize shareholder wealth. For example, Gugler (2003) nds that state-owned
Austrian rms smooth dividends and are much less likely to cut payouts when
reductions are warranted compared with rms owned by families. In a similar vein,
for a local (Thai) subsidiary of a foreign corporation, countervailing issues of tax
management, prot repatriation, or transfer pricing may shift management priorities
away from shareholder wealth maximization.
13
We also conrm that a more restrictive denition of high ownership (50%) yields
qualitatively similar results.
compare the characteristics of rms that have high family ownership
to rms with low family ownership. This initial analysis provides us
with some insights about family rm behavior that we use to guide
our subsequent empirical analyses. For the subsequent regression
analyses, we maintain the division of high and low family owner-
ship.
14
This classication scheme results in two distinct groups: (i)
high family ownership rms (family ownership above the median
for all family rms); and (ii) low family ownership rms (family
ownership below the median for all family rms).
3.2. Identication of pyramidal structures (ratio of cash ow rights to
voting rights)
Though Thai law requires one share, one vote, it is possible to
have differences between voting or control rights and cash ow
rights through use of indirect shareholdings or pyramidal owner-
ship. The deviation between voting rights and cash ow rights for
rms in our sample indicates the extent of control-enhancing mech-
anisms in place, such as pyramidal ownership. We follow prior re-
search in the approach we use to identify cash ow rights and
voting rights (La Porta et al., 1999).
15
The ratio of cash ow rights
to voting rights, or the wedge, is the key measure we use to deter-
mine the ultimate owners of a rm through the chain of control.
For companies that only have direct shareholdings, (i.e., no chain
of control or holdings by afliated companies), the cash ow rights
are exactly equal to the voting rights and thus the ratio of the cash
ow rights to the voting rights or the wedge is equal to one. A
wedge value lower thanone indicates that, throughindirect or pyra-
midal ownership, rms have voting rights that exceed cash ow
rights. For example, a sample rm may be majority-owned (50%)
by a second public company which is, in turn, majority-owned
(60%) by a group of family members. This rm is not widely held
and clearly has a chain of control. Examining the chain of control,
the family is the ultimate owner of the sample rm via its indirect
holdings through the second rm. Thus, the sample company is con-
sidered a family rm. As in other studies, we determine the voting
rights as corresponding to the smallest shareholding or weakest
link in a chain of control. In this example, the voting rights would
be 50%. However, the cash ow rights are 50% 60% or 30%, deter-
mined by multiplying the successive shareholdings along the chain
of control. Thus, the deviation from cash ow rights and voting
rights or wedge would be equal to the cash ow rights of 30% di-
vided by the voting rights of 50%, yielding a wedge value of 0.60. We
use the procedure described above to calculate the cash owrights,
voting rights, and wedge values for each rm in our sample.
3.3. Corporate governance measurement
Beyond measurement of the usual variables, such as board size
and independence, we construct a corporate governance index
(CGI) in order to assess the quality of corporate governance prac-
tices among listed Thai rms. Calculated from a total of 117 sepa-
rate criteria, the CGI quanties the overall quality of corporate
governance practices. We develop the criteria from the OECDs
(Organization for Economic Cooperation and Development) ve
corporate governance principles (OECD, 1999; 2004) and then
adjust the criteria to take into account the subtleties of Thai laws
and regulations.
16
We construct this corporate governance index,
rather than using an existing index (e.g., Gompers et al., 2003; Beb-
chuk et al., 2009; Brown and Caylor, 2006) because these other mea-
sures of governance may not be fully applicable to Asian markets, in
general, and Thai rms, in particular. The other indexes are built
primarily from provisions relating to takeover defenses and other
shareholder rights. Hostile takeovers are rare in Asian markets
largely because of concentrated and complex ownership structures,
and unique institutional settings.
The strengths of the corporate governance measure (CGI) used
in this study are twofold. First, the CGI index measures the actual
quality of corporate governance, i.e., the corporate governance-re-
lated activities or rm disclosures which, thus, reveal the practices
actually implemented by the rms. The CGI also acts as a gauge of
quality, showing whether the observed practices are missing
(poor), match the level required by law (good), or reach the highest
level of quality equivalent to international best practices (best).
The second strength of this measure concerns the foundations of
the survey measures themselves. The measures are rooted in eco-
nomic and nancial research ndings and theories, aggregating
many of the conclusions that have received empirical support from
prior research. These theories and ndings form the basis for the
OECDs corporate governance principles. The complete scorecard
is shown in Appendix A. The scorecard criteria span ve sections,
matching the ve OECD corporate governance principles: the
rights of shareholders, equitable treatment of (minority) share-
holders, role of stakeholders, disclosure and transparency, and
board responsibilities.
3.3.1. Shareholders rights
Shareholders rights should be protected by the corporate gov-
ernance structure.
17
In addition, the corporate governance structure
should also make it easy for shareholders to exercise their rights. The
rst section of the measurement assesses the provision of basic
shareholder rights, including the right to: (i) secure methods of own-
ership registration; (ii) convey or transfer shares; (iii) obtain relevant
and material information on the corporation on a timely and regular
basis; (iv) participate and vote in general shareholder meetings; (v)
elect and remove members of the board; and (vi) share in the prots
of the corporation. Twenty-two measures capture the actual rights of
shareholders. To evaluate the quality of protection of shareholders
rights, we examine in detail the relevant documents provided by
14
We identify 17 rms that have no family ownership. These rms are included in
our low family ownership group. Our results remain qualitatively unaffected if we
repeat the subsequent analyses after dropping these rms.
15
La Porta et al. (1999) use six classications of ownership: widely-held (no
dominant owner); family (members of the same family with the same last name);
state (government ownership); widely-held nancial institutions (nancial institu-
tions that do not have a single controlling large shareholder); widely-held corpora-
tions (corporations that do not have a single controlling large shareholder; and other.
Essentially the same classication scheme is used in subsequent studies such as
Claessens et al. (2000, 2002).
16
The measurement itself was initially developed as part of an annual project by the
Thai Institute of Directors Association (Thai IOD) called Corporate Governance
Baselining in Thailand, which commenced in 2000. The late Mr. Charnchai
Charuvastr, the former President of the Thai IOD, was instrumental in working with
the Thai government to include this annual project as a part of the Thai National
Governance Committee. To ensure adherence to international standards and compa-
rability, the original questionnaire was designed with technical assistance from
McKinsey and Company and the World Bank. The steering committee supervising the
development and scoring process consists of representatives from the Stock Exchange
of Thailand, the Securities and Exchange Commission, and related parties (e.g., the
Institute of Certied Accountants and Auditors of Thailand, the Thai Investors
Association, and the Government Pension Fund). The Steering Committee also
determines the composition and weighting scheme of the CGI. In the rst year, the
World Bank generously provided nancial support in the early stage of the project in
Thailand.
17
Protection of shareholders rights is critical to economic and capital market
development (LLSV, 1997). Previous studies have shown evidence that rm value
declines when the control rights of the largest shareholders exceed their ownership
rights (Claessens et al., 2002). An example of a shareholders right that should be
protected is the ability to review the compensation for board members (Bushman
et al., 2004; Murphy, 1999). Shareholders need to receive company information that
is relevant and material (Gillian and Starks, 2000; Karpoff et al., 1996). Owners should
also be able to participate and vote in general shareholder meetings (Bhagat and
Brickley, 1984; Gordon and Pound, 1993; Ferris et al., 2003; Fich and Shivdasani,
2005), and elect and remove members of the board (LLSV, 1998; Fama and Jensen,
1983).
the companies and the regulators. The resultant score for this sub-
section is scaled to comprise 25% of CGI, the governance index.
18
3.3.2. Equitable treatment of shareholders
All shareholders should be treated similarly whether they are
dominant owners, minority owners, or foreign shareholders. In East
Asia, the treatment of shareholders is critical because the compa-
nies operate in an environment in which inside, majority share-
holders have advantages over outside, minority shareholders
(Claessens et al., 2002). For example, the second section of the
CGI measurement assesses whether processes and procedures for
general shareholder meetings allow for equitable treatment of all
shareholders and whether company procedures make it unduly dif-
cult or expensive for shareholders to cast votes.
19
There are 13
items to evaluate the equitable treatment of shareholders reported
in the ofcial documents provided by the rms and the regulators.
The score for this sub-section makes up approximately 15% of CGI.
3.3.3. Role of stakeholders
The corporate governance framework should recognize the
rights of stakeholders established by law or through mutual agree-
ments and encourage active cooperation between corporations and
stakeholders in creating nancially sound enterprises. The third
part of the scorecard covers the role of stakeholders, specically
the interactions of the rm with stakeholder groups, such as
employees, creditors, suppliers, shareholders, and the environ-
ment.
20
This section of the CGI measurement assesses whether
stakeholders can participate in the corporate governance process
or have access to relevant and reliable information on a timely and
regular basis. There are nine survey items in this sub-section, making
up approximately 10% of CGI.
3.3.4. Disclosure and transparency
Corporate disclosure and transparency are two cornerstones of
good governance.
21
Therefore, the corporate governance framework
should ensure timely and accurate disclosures are made on all mate-
rial matters regarding the corporation, including the nancial situa-
tion, performance, ownership, and governance of the company. This
section of the CGI measurement assesses whether the information
was prepared and disclosed in accordance with acceptable corporate
standards for accounting and nancial and non-nancial disclosures.
Further, it assesses whether the channels for disseminating informa-
tion provide for all users equal, timely, and cost-efcient access to
the relevant information. There are 32 items in the survey that
examine disclosure practices. These measures account for approxi-
mately 25% of the CGI score.
3.3.5. Board responsibilities
The nal section of the scorecard addresses board responsibili-
ties, an area that has generated an extensive amount of research
interest. The OECD principles reafrm that the corporate gover-
nance framework should ensure the strategic guidance of the com-
pany, the effective monitoring of management by the board, and
the boards accountability to the company and the shareholders.
22
Much of the prior research focuses on governance variables, identi-
fying broad board characteristics such as independence and board
size. Often, however, in Thailand, there are deep personal connec-
tions between the CEO and board members. Extra-contractual mech-
anisms are usually available to the CEO or family for disciplining and
controlling directors, who are often family members or otherwise
connected to the family through business or personal dealings. We
believe our in-depth assessment of board practices and policies pro-
vides a more accurate gauge of a boards ability to implement delib-
erate and meaningful practices designed to enhance corporate
governance. In total, there are 41 survey items to assess board
responsibilities. The items in this section make up approximately
30% of CGI.
We draw the data used to evaluate the governance practices for
each rm from a wide variety of publicly available information
sources, such as annual reports, Securities and Exchange Commis-
sion and Stock Exchange of Thailand lings, minutes from annual
shareholders meetings, articles of association, company by-laws,
and company websites. To reinforce the emphasis on minority
shareholders, this study assumes the viewpoint of an outside
investor. Specically, only publicly available ofcial documents serve
as source documents since this information would be readily avail-
able to outside investors. We score each company on all applicable
areas of CGI.
As assessing the level of corporate governance for an individual
company can be subjective, we design the scoring scheme to min-
imize this problem. In addition to cross-checking and auditing by
different raters, we quantify nearly every governance measure in
our study. This is also a unique feature of this study, as previous
research has only checked for the presence or absence of a specic
corporate governance measure. With our assessment procedure,
companies that omit or do not comply with a specic scoring
18
The Steering Committee (See Footnote 16) assigned weights to each component
of CGI. However, our results are robust to alternative weighting schemes including
assigning equal weights to each component.
19
There are several aspects of treatment of shareholders included in the measure-
ment. For example, Thai law prescribes one share, one vote, which has been shown to
benet shareholders (Grossman and Hart, 1988; Harris and Raviv, 1988). Additionally,
shareholders should have the opportunity to obtain effective redress should their
rights be violated. One example would be the abuse of minority shareholders at the
hands of controlling shareholders. Abusive related-party transactions (tunneling or
propping) have been documented as a serious violation of shareholder rights in
emerging markets (Cheung et al., 2006; Friedman et al., 2003; Johnson et al., 2000). In
addition, internal control systems need to be established to prevent the use of
material inside information (Givoly and Palmon, 1985), for example to prevent insider
trading.
20
Jensen (2002) contends that a rm cannot maximize value if it ignores the
interest of its stakeholders. This view is supported by Allen et al. (2009) who note that
rms may voluntarily choose to be stakeholder-oriented because this increases their
value in certain circumstances. Connelly and Limpaphayom (2004) nd that an
optimally designed environmental policy can maximize market valuation in an
emerging market.
21
Prior research (e.g., Ball, 2001; Bushman et al., 2004; Khanna et al., 2004)
demonstrates that both the quantity and the quality of corporate disclosure are
integral parts of effective governance practices. First, the ownership stakes of a rm
should be transparent (LLSV, 1998; Bushman et al., 2004; Claessens et al., 2002;
Mallette and Fowler, 1992; Himmelberg et al., 1999). The quality of information
provided to investors is another important dimension(Meek et al., 1995; Singhvi and
Desai, 1971). The quality of disclosure can also be a useful indicator of the levels of
agency conicts and information asymmetries within the rm (Healy and Palepu,
2001; Meek et al., 1995). Further, information such as related-party transactions,
external audit results, and insider transactions would be important to investors
(Cheung et al., 2006; Johnson et al., 2000; Fan and Wong, 2005). Also, prior research
has identied the benets of using multiple channels to communicate with investors
(Ashbaugh et al., 1999; Lang and Lundholm, 1993, 1996; Farragher et al., 1994).
Anderson et al. (2009) nd that family rms in the US lack transparency and that
founder- and heir-controlled rms are associated with weaker performance when
they are opaque.
22
An effective board can reduce agency conicts by exercising its power to monitor
and control management (Fama and Jensen, 1983). Frequent and well-attended board
meetings can have a positive effect on rm performance (Vafeas, 1999; Ferris et al.,
2003; Fich and Shivdasani, 2005). The auditing role of the board is one area where
substance, in this case concrete actions that enhance governance effectiveness, can be
separated from form (Adams, 1994; Scarbrough et al., 1998; Carcello et al., 2002;
Turpin and DeZoort, 1998). Directors must also exercise their role in oversight,
including evaluation of the CEO (Boyd, 1994) and themselves (Ingley and van der
Walt, 2002). One area where substance would clearly supersede form is the important
area of board committees (Klein, 1998). A number of researchers have investigated
the roles of board committees in propagating principles of good governance, e.g., on
the importance of audit committees (Carcello and Neal, 2000; Klein, 2002; Krishnan,
2005). Well-functioning audit, compensation, and director nomination committees,
each with a clear mission and each effectively discharging its duties, play a role in
protecting shareholder interests and increasing rm value (Brick et al., 2006; Daily
et al., 1998).
criterion receive a poor score. Meeting the legal compliance stan-
dard earns a rm a score of good, while rms which exceed the
regulatory requirements and/or meet international standards re-
ceive the highest score. Once the assessment is complete, we scale
the CGI score, aggregated across the ve sub-sections, from zero to
100%.
The original version of the survey was designed and piloted on a
select group of 133 companies in 2000. The Thai Institute of Direc-
tors Association conducted the second and third studies in 2002
and 2004. After the initial survey and during the intervening years,
a number of questions in the original survey were revised while
new questions were added. The original version contained 57
questions whereas the latest version contains 117 questions (see
Appendix A). While the number of questions and the format of
the survey have changed over the years, the structure of the survey
retains the same mapping of the OECD Principles of Corporate Gov-
ernance (1999). The survey was then executed again in 2005 with
the most comprehensive coverage: nearly all rms listed on the
Stock Exchange of Thailand were included in the study.
The time-series results of the survey from 2002 to 2005 are
shown in Table 1 and, graphically, in Fig. 2. The results from the
overall CGI scores show that the quality of corporate governance
practices of Thai companies has gradually improved. Specically,
the average CGI score improved from 57.61 (out of 100) in 2002
to 61.79 in 2005. This is attributable to the reform efforts initiated
by the government and related organizations. The results clearly
showthat Thai companies are going through a major transformation
and, therefore, no longer have the same characteristics as Thai
companies examined in previous studies using samples before
the Asian nancial crisis (e.g., Claessens et al., 2000; Wiwattana-
kantang, 2001).
From the descriptive statistics in Table 1, the increase in the
overall quality of corporate governance practices comes largely
from two major areas, disclosure and transparency (Section D)
and role of stakeholders (Section C). The improvement in the area
of disclosure and transparency is shown by the increase in the
average score from 55.54 in 2002 to 73.09 in 2005. This rise is most
likely a result of regulatory reforms and the implementation of
new rules and regulations by the Stock Exchange of Thailand
(SET) and the Securities and Exchange Commission. During this
period, the SET and the Thai Institute of Directors Association also
launched programs to increase the awareness of the role of stake-
holders among listed rms which, in turn, led to a sizable increase
in the score (43.06 in 200264.04 in 2005) in Section C of the sur-
vey. The equitable treatment of shareholders (Section B) also
shows some improvement (69.32 in 200274.85 in 2005) whereas
the scores for the board responsibilities segment (Section E) show
virtually no improvement.
The most striking result is a substantial decline in the scores for
the rights of shareholders (Section A), going from 72.45 in 2002 to
64.40 in 2005. This is largely due to an increase in cross-holdings
andthe use of pyramidal structures by Thai family rms. Ina pre-cri-
sis study by Claessens et al. (2000), the average ratio between cash
ow rights and voting rights among Thai rms is close to 1.0 (i.e.,
Table 1
Descriptive statistics of corporate governance index by survey year.
Year CGI Section A Section B Section C Section D Section E Number of rms in survey
2002 57.61 72.45 69.32 43.06 55.54 49.26 294
2004 61.30 63.68 72.52 61.80 74.05 50.09 327
2005 61.79 64.40 74.85 64.04 73.09 50.84 364
This table presents the average of the Corporate Governance Index (CGI) and the ve CGI sub-indexes based on the OECD corporate governance principles (1999) for three CGI
surveys. The surveys were completed during 2002, 2004, and 2005. The sample is drawn from publicly-traded rms in Thailand. The CGI and each sub-index ranges are
expressed as percentages and range from 0 to 100. The ve subsections are: rights of shareholders (Section A); equitable treatment of shareholders (Section B); role of
stakeholders (Section C); disclosure and transparency (Section D); and board responsibilities (Section E). Survey questions are shown in Appendix A.
02
02
02
02
02
02
04
04
04
04
04
04
05
05
05
05
05
05
0
10
20
30
40
50
60
70
80
CGI Section A Section B Section C Section D Section E
CGI Scores by Section, based on the OECD Principles of Corporate Governance (1999)
C
o
r
p
o
r
a
t
e

G
o
v
e
r
n
a
n
c
e

I
n
d
e
x

(
C
G
I
)

2
0
0
2
,

2
0
0
4
,

a
n
d

2
0
0
5

S
u
r
v
e
y
s
Fig. 2. Average corporate governance survey scores (CGI). The gure shows the average scores of the Corporate Governance Index (CGI) in Thailand for three survey years:
2002, 2004, and 2005. The ve subsections are: rights of shareholders (Section A); equitable treatment of shareholders (Section B); role of stakeholders (Section C); disclosure
and transparency (Section D); and board responsibilities (Section E).
no pyramidal structures are observed). In2005, the average ratio be-
tween cash owrights and voting or ownership rights is 0.833, indi-
cating that Thai rms now have substantially increased the use of
this type of control-enhancing structure. Overall, it appears that
while Thai rms have improved some governance measures, these
rms have also experienced an effective decline in shareholder
rights.
3.4. Empirical methods
In our initial analyses, we examine the inuence of family con-
trol and family ownership on rm performance using OLS regres-
sion analyses.
23
Tobins q, a measure of rm market valuation, is
the dependent variable.
24
We include variables for family ownership
and various board characteristics in the regressions, as well as other
rm characteristics, which serve as control variables.
We evaluate the rst model, shown below as Eq. (1), using the
full sample.
q
i
b
o
b
1
BOD SIZE
i
b
2
BOD IND
i
b
3
FAM OWN
i
b
4
FAM OWN
2
i
b
5
SIZE
i
b
6
FIRM AGE
i
b
7
ROA
i
b
8
CAPITAL EXPENDITURES
i
b
9
LEVER
i
e
1i
1
For the second regression, we add a dummy variable (Wedge dum-
my), indicating the presence of a control-enhancing pyramidal
ownership structure, as an additional explanatory variable to the
rst model.
q
i
b
o
b
1
WEDGE DUMMY
i
b
2
BOD SIZE
i
b
3
BOD IND
i
b
4
FAM OWN
i
b
5
FAM OWN
2
i
b
6
SIZE
i
b
7
FIRM AGE
i
b
8
ROA
i
b
9
i
b
10
LEVER
i
e
1i
2
For the third regression, we add CGI, the corporate governance
score, as an additional explanatory variable to Model 1.
q
i
b
o
b
1
CGI
i
b
2
BOD SIZE
i
b
3
BOD IND
i
b
4
FAM OWN
i
b
5
FAM OWN
2
i
b
6
SIZE
i
b
7
FIRM AGE
i
b
8
ROA
i
b
9
i
b
10
LEVER
i
e
1i
3
Lastly, we include both the Wedge dummy variable and CGI as addi-
tional explanatory variables.
q
i
b
o
b
1
CGI
i
b
2
WEDGE DUMMY
i
b
3
BOD SIZE
i
b
4
BOD IND
i
b
5
FAM OWN
i
b
6
FAM OWN
2
i
b
7
SIZE
i
b
8
FIRM AGE
i
b
9
ROA
i
b
10
i
b
11
LEVER
i
e
1i
4
Tobins q, as a market-based measure of rm performance, is de-
ned as the sum of the book value of long-term debt and the market
value of equity divided by the book value of total assets. CGI is the
percentage score from the Corporate Governance Index based on
the OECD Principles of Corporate Governance (2004). The CGI score
is comprised of scores on ve sub-components of CGI: rights of
shareholders, treatment of shareholders, role of stakeholders, dis-
closure and transparency, and board responsibilities. Both CGI and
the sub-component scores are expressed as percentages. Family
ownership is the proportion of outstanding shares held by the
founding family and afliated members.
We include several board-related measures that have been used
in other studies as control variables. These elements, i.e., board size
and board composition, and their relation to rm performance,
have been investigated in the literature but show mixed results.
In this study, board size is the number of directors on a rms board
while board independence (IND) is the proportion of directors who
are independent/outside directors.
For robustness, we also include several other control variables.
We calculate protability by taking the ratio of net income after
taxes divided by total assets. Firm size is the natural log of total as-
sets. Firm age is the natural logarithm of the years since the rms
founding. We dene nancial leverage as the ratio of long-term
debt divided by total assets.
4. Results
Table 2 contains the descriptive statistics for the 216 rms in
the sample. We classify companies into High Family Ownership
and Low Family Ownership groups depending on whether the
proportion of outstanding shares held by family or related mem-
bers is above or below the median for all rms (41.2%). Table 2
shows three sets of statistics: (i) for the full sample of 216 rms,
(ii) for 108 rms with high family ownership, and (iii) 108 rms
with low family ownership (including rms with zero family own-
ership). When comparing the high family ownership rms to low
family ownership rms, the descriptive statistics show some strik-
ing differences. The average share ownership of family and afli-
ated members is 39.29% for the full sample. Low family
ownership rms have a mean family ownership percentage of
20.21% whereas the mean percentage is 58.37% for high family
ownership rms. The difference is statistically signicant at con-
ventional levels (t = 20.76). The difference in rm performance,
as measured by Tobins q, is also statistically signicant and lower
for high family ownership rms. The average Tobins q for the full
sample is 0.82. Low family ownership rms have an average q of
0.88, which is higher than the average q for high family ownership
rms (0.76). The difference is statistically signicant at the 10% le-
vel (t = 1.77). The average return on assets for high family owner-
ship rms is also lower than that for low family ownership rms
but the difference is not statistically signicant (t = 1.18). Firms
with high family ownership are, on average, slightly smaller (mean
rm size of 14.74, measured by the natural logarithm of total as-
sets) than low family ownership rms (15.10; t = 2.07) and have
lower levels of nancial leverage, measured by the ratio of long-
term debt to total assets (0.09 versus 0.14; t = 2.48), as judged
by the ratio of long-term debt to total assets, suggesting that high
family ownership is associated with more conservative nancing
strategies.
25
With respect to general governance characteristics, the two
types of rms have similar percentages for the average proportion
of independent directors on the board. The mean is 35% (low own-
ership) versus 33% (high ownership) for the two groups of rms
(t = 1.37). Similarly, the two types of rms have average board
sizes (11.1 directors versus 11.3) that are nearly identical. While
the overall CGI scores for the two groups are similar, with a mean
score of 69.17 for high family ownership rms versus a mean of
70.25 for low family ownership rms (t = 0.84), some CGI sub-
section scores are lower for high family ownership rms than low
family ownership companies. Rights of Shareholders and Disclosure
23
In subsequent analyses, we use a simultaneous equations approach to control for
a potentially endogenous relation between CGI and q.
24
To make the results comparable to Bebchuk et al. (2009), the empirical analyses
are repeated using the natural logarithm of q as the dependent variable. The overall
results are qualitatively similar to the reported results.
25
Family-controlled rms also appear to be associated with lower levels of debt in
the US. Agrawal and Nagarajan (1990) report that all-equity rms have higher cash
holdings and signicantly higher family control compared to a matched control
sample of levered rms.
and Transparency are both lower for high family ownership com-
panies. However, the difference is statistically signicant only for
Rights of Shareholders. The scores for the Treatment of Sharehold-
ers, Roles of Stakeholders, and Board Responsibilities sections are
statistically indistinguishable between the two types of rms.
We classify our sample companies into two groups based on the
ratio between cash ow rights and voting rights. Companies with a
wedge or pyramidal structureare denedas thosethat havearatio
of cash ow rights to voting rights lower than one. The comparison
betweensample rms that employa pyramidal ownershipstructure
and other rms, shown in columns 4 and 3, respectively of Table 2,
reveals some interesting ndings. From the descriptive statistics in
Table 2, both groups of companies are quite similar with respect to
nancial characteristics. There is no statistical difference in rm
age, rm size, protability, capital expenditures and leverage be-
tween the two groups. However, companies with a pyramidal struc-
ture have higher average family ownership than those with no
wedge (t = 1.80). This is consistent with the notion that founding
families attempt to use the pyramidal structure to maintain control
of their rms. Interestingly, rms with pyramidal structures have a
higher mean valuation than those that do not employ the pyramidal
structure (t = 2.03). It also appears that companies with pyramidal
structures exhibit better corporate governance, as measured by CGI.
On the surface, it appears that pyramidal structures are value-
enhancing. However, these univariate comparisons could be mis-
leadingnot onlybecause of the complexandpotentiallyendogenous
nature of the interrelationship among ownership, control and value,
but also because greater control may allowfamily rms to manipu-
late the corporate governance measures to showbetter scores, with-
out actually implementing value enhancing strategies. We examine
these issues further in subsequent empirical analyses.
Table 3 contains a correlation matrix for the variables used in the
study. Panel A contains the correlations between the overall CGI
score and rm characteristics. The correlation between Tobins q
andboardindependenceis positive andstatisticallysignicant while
the correlation with board size is not statistically signicant. Most
importantly, there appears to be a positive and statistically signi-
cant relation between q and the quality of corporate governance
Table 2
Descriptive statistics.
All
rms
High family
ownership
Low family
ownership
t-
Statistic
No pyramidal structure
observed
Pyramidal structure
observed
t-
Statistic
(1) (2) (12) (3) (4) (34)
Family ownership (%) 39.29 58.37 20.21 20.76
***
37.56 44.00 1.80
*
(23.39) (11.46) (15.28) (23.47) (22.72)
Wedge 0.83 0.82 0.85 0.87 1.00 0.38 35.13
***
(0.30) (0.31) (0.29) (0.00) (0.22)
Tobins q 0.82 0.76 0.88 1.77
*
0.78 0.93 2.03
**
(0.50) (0.47) (0.52) (0.49) (0.49)
Protability (ROA) 0.05 0.05 0.06 1.18 0.05 0.06 0.95
(0.07) (0.07) (0.08) (0.08) (0.05)
Firm size 14.92 14.74 15.10 2.07
**
14.88 15.03 0.74
(1.31) (1.21) (1.37) (1.31) (1.30)
Firm age 3.18 3.24 3.13 1.75
*
3.19 3.17 0.28
(0.47) (0.41) (0.51) (0.44) (0.53)
Capital expenditures 0.08 0.08 0.08 0.20 0.08 0.09 0.94
(0.08) (0.07) (0.08) (0.07) (0.09)
Financial leverage 0.11 0.09 0.14 2.48
**
0.11 0.11 0.01
(0.13) (0.12) (0.14) (0.12) (0.16)
Board size 11.20 11.26 11.14 0.29 10.91 12.00 2.38
**
(3.02) (3.24) (2.81) (2.98) (3.04)
Board independence 0.34 0.33 0.35 1.37 0.34 0.32 1.21
(0.10) (0.10) (0.11) (0.10) (0.11)
Corporate governance
index
69.71 69.17 70.25 0.84 68.40 73.28 3.44
***
(9.47) (9.40) (9.55) (9.49) (8.51)
Rights of shareholders 70.93 69.27 72.59 1.76
*
69.91 73.70 1.79
*
(13.89) (12.78) (14.78) (14.11) (12.96)
Treatment of
shareholders
74.06 73.72 74.40 0.70 73.81 74.74 0.85
(7.15) (6.59) (7.68) (7.44) (6.29)
Role of stakeholders 70.49 71.05 69.94 0.38 68.64 75.54 2.14
**
(21.18) (20.09) (22.30) (22.24) (17.15)
Disclosure and
transparency
81.74 80.99 82.48 1.22 80.62 84.77 3.07
***
(8.99) (8.96) (8.98) (9.45) (6.77)
Board responsibilities 53.93 53.70 54.15 0.23 51.82 59.67 3.74
***
(14.08) (14.50) (13.72) (13.60) (13.88)
N 216 108 108 158 58
This table presents summary statistics of variables used in the study. The sample consists of rms listed on the Stock Exchange of Thailand in 2005. The sample is split based on
the median value of family ownership. Family ownership is the number of outstanding shares held by the founding family and afliated members divided by the total number
of shares outstanding. Wedge is the ratio of the cash ow rights divided by the voting rights. Tobins q is the book value of long-term debt plus the market value of equity
divided by the book value of total assets. Protability (ROA) is the ratio of net income after taxes divided by total assets. Firmsize is the natural log of total assets. Firmage is the
natural log of the years since the rms founding. Capital expenditures are the ratio of capital expenditures divided by total assets. Financial leverage is the ratio of long-term
debt divided by total assets. Board size indicates the number of directors on the board of directors. Board independence is the number of directors who are independent/outside
directors divided by board size. CGI is the percentage score from the Corporate Governance Index based on the OECD Principles of Corporate Governance. The ve sub-
components of CGI are: rights of shareholders, equitable treatment of shareholders, role of stakeholders, disclosure and transparency, and board responsibilities, expressed as
percentages. Standard deviations are shown in parentheses. t-Statistics are calculated for the differences between family-owned rms and other rms.
*
statistical signicant differences at the 10% level (two-tailed).
**
***
practices, as measuredby the CGI. Panel Bshows the correlations be-
tweenCGI andthe ve sub-components. The correlations among the
sub-components are positive and statistically signicant, showing
that these ve aspects of corporate governance practices are
interrelated.
Table 4 presents regression results using Tobins q as the depen-
dent variable. In this table, we run regressions using all rms in the
sample, adding, in turn, additional variables of interest such as
dummy variables for the presence of pyramidal ownership and
the CGI. To recap, the purpose of this series of regression analyses
is twofold. First, we want to examine the relation between rm va-
lue, as measured by q, and (1) the proportion of family ownership
and (2) conventional governance variables. We also wish to
compare the predictive ability of the CGI variable to that of
conventional governance variables. Secondly, we want to look at
the elation between the use of pyramidal ownership structures
and rm value, after controlling for other factors.
In the rst model, the coefcient for family ownership is not statis-
tically signicant at conventional levels. This indicates that after con-
trolling for other factors, there is no signicant relation between
family ownership and rm value, consistent with ownership being
endogenously determined (Demsetz and Lehn, 1985). In Model 2, we
include a dummy variable to indicate the presence of a pyramidal
structure (Wedge dummy). The coefcient for the presence of a pyra-
midal structure is positive and statistically signicant. However, the
statistical signicance disappears after adding additional control vari-
ables, as shown in the subsequent models. Looking at the results from
models 1 and 2, a striking nding is that there is no signicant relation
between q and conventional corporate governance variables, such as
boardcharacteristics. It appears that thesegovernancevariables, which
have traditionally been found to be associated with rm value (q) in
developed economies following common law,
26
apparently do not
exert any inuence on rm value for Thai family rms. This nding
also provides preliminary support for our contention that many gov-
ernance variables represent the form but not the substance of
effective corporate governance practices in countries where the fam-
ily exerts substantial control over voting rights and control mecha-
nisms are not transparent.
In order to shed further light on the relation between the qual-
ity of governance practices and value, we go beyond the standard
governance variables and turn to the Corporate Governance Index
(CGI) described earlier. Recall that the CGI index is a composite
score, aggregating many of the mandated and voluntary provisions
and disclosures made by rms. These provisions and disclosures
are relevant to the quality and visibility of corporate governance
practices. Thus, we expect the CGI index to exhibit an association
with market valuation. Models 3 and 4 present regression analyses
with the addition of CGI. We nd that as before, the coefcients for
conventional governance variables (e.g., board size, board indepen-
dence and family ownership) are still not statistically signicant.
Most interestingly, the regression shows a positive and statistically
signicant relation between CGI and Tobins q. The coefcient for
CGI is positive in model 3 and in model 4, which includes the dum-
my variable for the presence of a pyramidal ownership structure.
Moreover, in model 4, the regression coefcient for the presence
of a pyramidal structure is no longer statistically signicant. We
nd that of the control variables, protability shows a positive
and statistically signicant relation to Tobins q in all models.
The coefcients for capital expenditures are also positive and sig-
nicant in all four regression models. Financial leverage does not
have a statistically signicant coefcient in any model.
It is possible that our results are affected by an endogenous
relation between CGI and q. Lehn et al. (2007) nd that after con-
trolling for past performance, there is no contemporaneous associ-
ation between the quality of corporate governance, as measured by
the GIM Index,
27
and rm valuation. As a robustness check, we
Table 3
Correlation matrix.
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
Panel A: Correlations between CGI and rm characteristics
(1) Family 1.0
(2) Wedge 0.09 1.0
(3) Tobins q 0.09 0.14 1.0
(4) ROA 0.05 0.08 0.49 1.0
(5) Firm size 0.18 0.01 0.20 0.12 1.0
(6) Firm age 0.11 0.01 0.06 0.01 0.08 1.0
(7) Cap ex 0.02 0.05 0.24 0.18 0.05 0.14 1.0
(8) Leverage 0.19 0.02 0.14 0.01 0.47 0.14 0.31 1.0
(9) Board size 0.08 0.19 0.05 0.02 0.14 0.26 0.06 0.04 1.0
(10) Independence 0.13 0.14 0.12 0.09 0.06 0.14 0.02 0.13 0.62 1.0
(11) CGI 0.12 0.19 0.30 0.25 0.47 0.02 0.02 0.27 0.05 0.07 1.0
(1) (2) (3) (4) (5) (6)
Panel B: Correlations among CGI and sub-components of CGI
(1) CGI 1.0
(2) Rights of shareholders 0.80 1.0
(3) Treatment of shareholders 0.24 0.13 1.0
(4) Role of stakeholders 0.74 0.44 0.07 1.0
(5) Disclosure and transparency 0.75 0.52 0.18 0.37 1.0
(6) Board responsibilites 0.87 0.63 0.04 0.54 0.60 1.0
This table presents correlation coefcients among variables used in the study. The sample consists of rms listed on the Stock Exchange of Thailand in 2005. In Panel A, family
ownership is the number of outstanding shares held by the founding family and afliated members divided by the total number of shares outstanding. Wedge is the ratio of
the cash ow rights divided by the voting rights. Tobins q is the book value of long-term debt plus the market value of equity divided by the book value of total assets.
Protability (ROA) is the ratio of net income after taxes divided by total assets. Firmsize is the natural log of total assets. Firmage is the natural log of the years since the rms
founding. Capital expenditures is the ratio of capital expenditures divided by total assets. Financial leverage is the ratio of long-term debt divided by total assets. Board size
indicates the number of directors on the board of directors. Board independence is the number of directors who are independent/outside directors divided by board size. CGI
is the percentage score from the Corporate Governance Index survey based on the OECD Principles of Corporate Governance. Panel B presents the correlation coefcients
between CGI and the ve sub-components of CGI: rights of shareholders, equitable treatment of shareholders, role of stakeholders, disclosure and transparency, and board
responsibilities. Correlations that are statistically signicant at the 10 percent level are shown in bold.
26
Thus, our comparison group is primarily rms in the US and UK. For instance, see
Yermack (1996) on the signicance of board size and Morck et al. (1988) on the
relation between managerial stock ownership and value.
27
See Gompers et al. (2003).
include the average Tobins q measured over 2002 and 2004 as an
additional control variable in our analysis. We next run two-stage
least-squares (2SLS) regression models using the full sample, as
shown below in Eqs. (5a) and (5b). We then split the sample into
four groups to isolate the effects of family ownership and pyramidal
structures. We split the sample according to family ownership
(above or below the median level of ownership) and the presence
or absence of pyramidal structures. Next, we re-estimate the two-
stage least-squares regression model for each of the four groups.
Due to econometric reasons, family ownership (in Eqs. (5a) and
(5b)) is omitted from the additional regressions for the subgroups
(5c) and (5d).
q
i
b
o
b
1
WEDGE DUMMY
i
b
2
CGI
i
b
3
Averageq
i
b
4
BOD SIZE
i
b
5
BOD INDEP
i
b
6
FAM OWN
i
b
7
FAM OWN
2
i
b
8
SIZE
i
b
9
FIRM AGE
i
b
10
ROA
i
b
11
i
b
12
LEVER
i
e
1i
5a
CGI
i
b
o
b
1
WEDGE DUMMY
i
b
2
Averageq
i
b
3
BOD SIZE
i
b
4
BOD INDEP
i
b
5
FAM OWN
i
b
6
FAM OWN
2
i
b
7
SIZE
i
b
8
FIRM AGE
i
b
9
ROA
i
b
10
i
b
11
LEVER
i
e
1i
5b
q
i
b
o
b
1
WEDGE DUMMY
i
b
2
CGI
i
b
3
Averageq
i
b
4
BOD SIZE
i
b
5
BOD INDEP
i
b
6
SIZE
i
b
7
FIRM AGE
i
b
8
ROA
i
b
9
i
b
10
LEVER
i
e
1i
5c
CGI
i
b
o
b
1
WEDGE DUMMY
i
b
2
Averageq
i
b
3
BOD SIZE
i
b
4
BOD INDEP
i
b
5
SIZE
i
b
6
FIRM AGE
i
b
7
ROA
i
b
8
i
b
9
LEVER
i
e
1i
5d
The main objective of the two-stage least-squares analysis is to see
whether the contemporaneous relation between the quality of cor-
porate governance and rm valuation disappears after controlling
for past performance. The results from the Tobins q equation in
Table 5 show that our previous results are robust. Although the
regression coefcient for the past average q is statistically signi-
cant, the coefcient for contemporaneous CGI continues to be sta-
tistically signicant in the model using the full sample. Most
interestingly, the coefcient for the presence of a pyramidal struc-
ture is now negative and statistically signicant in the Tobins q
regression. Once the analysis takes into account past performance,
the use of a pyramidal structure is shown to be associated with low-
er rm values. This nding is consistent with the notion that con-
trolling shareholders have the ability to expropriate wealth from
other shareholders. The CGI regression also shows that the wedge
dummy is positive and signicantly associated with CGI. This result,
rather counter-intuitively, suggests that rms with a pyramidal
ownership structure score higher on the governance index. How-
ever, it is also likely that rms with greater control (wedge) rms
manipulate the governance measures to show higher governance
scores, while also impairing value. To understand this further, we
split the full sample into subsamples based on ownership and
wedge values and run the q and CGI regressions for each subsample.
An interesting and important nding emerges in the subgroup
analyses. We nd q is signicantly associated with CGI only for
rms that do not have a pyramidal control structure (i.e., those
rms with no deviation between cash ow rights and voting
rights). This empirical evidence suggests that the observed con-
temporaneous relation between the quality of corporate gover-
nance practices and market valuation exists only when the
owners do not employ opaque ownership structures that can be
exploited to the disadvantage of other shareholders. The results
are consistent with the notion that controlling owners can use
the pyramidal structure to undermine the positive benets of
adopting good corporate governance practices. Controlling owners
can attempt to show that their rms have improved the quality of
corporate governance practices but, in fact, negate the positive
effect by using the pyramidal structure as a counter measure.
We also nd, from the CGI equations in the subsample regres-
sions, that there is no consistently signicant relation between
past performance and the quality of current corporate governance
practices among rms in our sample. This result is unlike the re-
sults obtained by Lehn et al. (2007). Specically, the regression
coefcients for the average Tobins q are not statistically signicant
for most of the models in Table 5. We conclude that there is no
consistent empirical evidence that the contemporaneous relation
between CGI and q for our sample rms is an issue of reverse cau-
sality. In addition, the coefcients for rm size are positive and sta-
tistically signicant. This nding is consistent with the notion that
large rms tend to have better corporate governance practices.
Table 4
Regression results for Tobins q.
All rms All rms All rms All rms
(1) (2) (3) (4)
CGI 0.008
***
0.007
**
(3.31) (2.44)
Wedge dummy 0.145
**
0.090
(2.35) (1.36)
Board size 0.001 0.006 0.001 0.004
(0.02) (0.41) (0.03) (0.29)
Board independence 0.122 0.189 0.194 0.229
(0.29) (0.44) (0.46) (0.54)
Family ownership 0.004 0.004 0.001 0.002
(1.06) (1.03) (0.32) (0.45)
Family own. squared 0.001 0.001 0.001 0.001
(0.82) (0.68) (0.27) (0.33)
Firm size 0.042 0.049 0.014 0.024
(1.28) (1.57) (0.43) (0.74)
Firm age 0.008 0.046 0.058 0.016
(0.10) (0.59) (0.73) (0.19)
Protability 3.026
***
2.927
***
2.804
***
2.760
***
(4.56) (4.39) (4.26) (4.18)
Capital expenditures 0.802
*
0.883
**
0.887
**
0.929
**
(1.94) (2.10) (2.19) (2.27)
Financial leverage 0.114 0.098 0.038 0.053
(0.49) (0.45) (0.16) (0.24)
Constant 0.031 0.241 0.052 0.205
(0.07) (0.53) (0.11) (0.44)
Adjusted R
2
0.255 0.261 0.271 0.275
N 216 216 216 216
This table presents OLS regression results with Tobins q as the dependent variable.
The sample consists of rms listed on the Stock Exchange of Thailand in 2005. CGI is
the percentage score from the corporate governance index based on the OECD
Principles of Corporate Governance. Wedge dummy is a dummy variable with a
value of one if the ratio of the cash ow rights divided by the voting rights is less
than 1 and zero if the ratio is equal to 1. Tobins q is the book value of long-term
debt plus the market value of equity divided by the book value of total assets. Board
size indicates the number of directors on the board of directors. Board indepen-
dence is the number of directors who are independent/outside directors divided by
board size. Family ownership is the number of outstanding shares held by the
founding family and afliated members divided by the total number of shares
outstanding. Firm age is the natural log of the years since the rms founding.
Protability (ROA) is the ratio of net income after taxes divided by total assets.
Capital expenditures is the ratio of capital expenditures divided by total assets.
Financial leverage is the ratio of long-term debt divided by total assets. t-Statistics
are shown in parentheses.
*
Statistical signicant differences at the 10% level (two-tailed).
**
***
5. Conclusion
Thailand offers an interesting contrast to the US as an environ-
ment in which to study the interrelation among ownership struc-
ture, corporate governance and rm value. Most notably, rms in
many emerging markets are characterized as operating in environ-
ments with weaker protection of minority shareholder rights and
more concentrated ownership structures. In this type of environ-
ment, we expect that the agency conicts between controlling
and minority shareholders would be more severe than the conicts
observed in more developed markets. More importantly, regulators
have been attempting to push forward corporate governance re-
forms with the hope that good corporate governance can benet
all shareholders. Consequently, many Thai companies have pro-
gressively adopted internationally accepted corporate governance
practices.
In this paper, we study the relation between the quality of cor-
porate governance practices and rm value for Thai family rms
and the potential mediating effect of complex ownership struc-
tures on the relation between corporate governance and rm va-
lue. To accomplish our objectives, we develop a comprehensive
measure of corporate governance (the corporate governance index
or CGI) appropriate to the Thai context. We establish that, unlike
other conventional governance measures, our measure of effective
corporate governance is signicantly positively associated with
value for the full sample of family rms. The ndings from our
study highlight the importance of corporate governance in emerg-
ing markets. The ndings also highlight the difculty in obtaining
relevant measures of good corporate governance in these unique
economies which have very different institutional settings. In par-
ticular, conventional measures of corporate governance quality,
such as board independence, are not particularly effective. Though,
on the surface, good governance practices appear to be in place, the
effectiveness of these practices can be blunted, for example by ex-
tra-contractual arrangements that often exist between families
and board members. As a result, conventional governance variables
capture only the form, not the substance, of the effectiveness of
corporate governance practices among Thai family rms.
The situation after the Asian nancial crisis in 1997 also pro-
vides a unique setting as family rms have become more heteroge-
neous. After the crisis, a number of families sold their ownership
stakes to outside investors or strategic partners. We present empir-
ical evidence showing that Thai family rms employed more pyra-
midal structures after 1997, potentially to retain control of their
rms despite the reductions in ownership levels. Pyramidal owner-
ship structures in environments with weaker protection for minor-
ity shareholder rights can have a negative effect on rm value. Our
empirical results conrm that the use of pyramidal ownership
structures among Thai family rms negatively affects rm value.
Furthermore, we nd a moderating effect of the pyramidal structure
Table 5
Two-stage least squares regression results.
All rms High FO, wedge < 1 High FO, no wedge Low FO, wedge < 1 Low FO, no wedge
Tobins q CGI Tobins q CGI Tobins q CGI Tobins q CGI Tobins q CGI
Wedge dummy 0.34
*
4.48
**
(1.79) (3.48)
CGI 0.10
***
0.01 0.03
***
0.01 0.10
**
(3.54) (0.08) (3.49) (0.38) (2.32)
Average Tobins q 0.23
**
1.04 0.22 1.04 0.52
***
3.17 0.87
***
5.21 0.13 0.66
(2.03) (1.03) (1.23) (0.25) (5.67) (1.41) (6.73) (0.82) (0.90) (0.54)
Board size 0.01 0.01 0.03 0.05 0.01 0.02 0.04
*
0.30 0.07 0.44
(0.15) (0.01) (1.15) (0.09) (0.26) (0.04) (1.78) (0.26) (1.34) (1.09)
Board independence 0.77 6.56 0.64 36.21 0.90
*
15.12 0.41 8.77 0.16 4.87
(1.01) (0.96) (0.59) (1.64) (1.85) (1.24) (0.98) (0.41) (0.13) (0.46)
Family ownership 0.01 0.04
(0.36) (0.51)
Family own. squared 0.01 0.01
(0.41) (0.62)
Size 0.37
***
3.75
***
0.01 3.54
***
0.12
***
4.16
***
0.03 5.17
***
0.29
**
2.90
***
(3.24) (10.98) (0.22) (4.14) (2.70) (6.12) (0.78) (4.94) (2.02) (5.47)
Firm age 0.20 2.49
**
0.19 1.65 0.10 0.49 0.04 1.56 0.39 5.07
***
(1.39) (2.15) (1.27) (0.48) (1.22) (0.22) (0.50) (0.38) (1.33) (2.94)
Protability 0.10 21.43
***
6.78
***
83.07
**
2.02
***
8.69 2.83
**
3.80 1.11 27.48
**
(0.09) (2.68) (3.57) (2.46) (3.62) (0.61) (3.06) (0.08) (0.65) (2.63)
Capital expenditures 1.27 4.98 0.02 12.98 1.24
*
20.64 0.98
*
45.12
**
1.57 3.83
(1.51) (0.65) (0.03) (0.67) (1.84) (1.22) (1.95) (2.23) (1.14) (0.32)
leverage 0.12 3.40 1.05 2.75 0.27 6.08 0.33 9.83 0.54 7.92
(0.22) (0.69) (1.57) (0.18) (0.78) (0.68) (1.01) (0.61) (0.58) (1.04)
Adjusted R
2
0.502 0.258 0.655 0.184 0.484 0.305 0.798 0.083 0.500 0.322
N 216 216 33 33 75 75 25 25 83 83
This table presents two-stage least squares (2SLS) regression results with Tobins q and CGI score as the dependent variables. The sample consists of rms listed on the Stock
Exchange of Thailand in 2005. The sample is split by family ownership, where low family ownership rms (Low FO) rms are rms where family and afliated members hold
less than 41.2% (sample median) of the outstanding shares respectively. High-family ownership (High FO) rms are rms where family and afliated members own 41.2% or
more of the outstanding shares. CGI is the percentage score from the corporate governance index based on the OECD Principles of Corporate Governance. Wedge dummy is a
dummy variable with a value of one if the ratio of the cash ow rights divided by the voting rights is less than 1 and zero if the ratio is equal to 1. Tobins q is the sum of the
book value of long-term debt plus the market value of equity divided by the book value of total assets. The average value of Tobins q from 2002 and 2004 is included as an
explanatory variable. Board independence is the number of directors who are independent/outside directors divided by board size. Family ownership is the number of
outstanding shares held by the founding family and afliated members divided by the total number of shares outstanding. Firm size is the natural log of total assets. Firm age
is the natural log of the years since the rms founding. Protability (ROA) is the ratio of net income after taxes divided by total assets. Capital expenditures are the ratio of
capital expenditures divided by total assets. Financial leverage is the ratio of long-term debt divided by total assets. t-Statistics are shown in parentheses.
*
Statistical signicant differences at the 10% level (two-tailed) respectively.
**
***
on the relation between the quality of corporate governance prac-
tices (CGI) and rm value. Specically, the CGI shows a positive
association with q only for rms that do not employ pyramidal con-
trol structures. We interpret this result as providing evidence that
public companies in Thailand can improve corporate governance
practices in an effort to enhance rm value. At the same time,
our results also show that the presence of control-enhancing pyra-
midal ownership structures subverts the positive effect of good
corporate governance practices.
In summary, our results show that the link between governance
practices and value appears visible only when looking at a compre-
hensive range of practices, not selective, narrower measures. In
addition, the link is visible only in the absence of pyramidal own-
ership structures. Appearances can be deceiving, when owners
adopt internationally accepted governance practices while also
employing unscrupulous tactics, such as pyramidal ownership
structures, to reassert their control. These tactics are detrimental
to minority shareholders and ultimately to rm value. Finally, fu-
ture studies linking corporate governance and rm value or perfor-
mance should now look beyond the overall or prima facie relation
between corporate governance practices and rm value. The rea-
son is that there may be institutional or cultural factors in an econ-
omy which negate or nullify the effectiveness of the quality of
corporate governance practices that are being implemented.
Appendix A
Survey question Scoring References
I. Rights of shareholders Total of 22 items; maximum score = 42
(25% of CGI)
A. Shareholder rights dened Total of four items Bushman et al. (2004), La Porta et al.
(1998), Mallin (2001), and Murphy (1999)
1. Offer other ownership rights beyond
voting
Score 2 if equitable share of prots and
dividends and equitable treatment for
share repurchases, 1 if only one right is
offered, 0 if neither
2. Shareholders approve the
remuneration annually
Score 2 if approved, 0 if not
3. Presentation of board remuneration
to the shareholders
Score 2 if compensation details are
provided for every director; 0 if only total/
summation provided
4. Shareholders can elect board
members individually
Score 2 if yes, 0 if not
B. Shareholder rights disclosed Total of eight items Bhagat and Brickley (1984), Carcello and
Neal (2000), Easterbrook (1984), Fama and
Jensen (1983), Gillian and Starks (2000),
Gordon and Pound (1993), Jensen (1986),
Jensen and Meckling (1976), Karpoff et al.
(1996), Klein (2002), Krishnan (2005),
Raghunandan and Rama (2003), and Rozeff
(1982)
1. Quality of notice to call shareholders
meeting(s)
(a) Appointment of directors Score 2 if names and backgrounds are
provided, 1 if only one item is provided, 0 if
both items are missing
(b) Appointment of auditors Score 2 if name(s), prole, and fees are
provided, 1 if 2 items are provided, 0 if one
item or none provided
(c) Dividend policy amount and
explanation for payment
Score 2 if both items are provided, 1 if only
one item is provided, 0 if both items
missing
(d) Objective and reason for each
item on the shareholders meeting
agenda
Score 2 if included, 0 if omitted
(e) Directors comments and opinion
for each agenda item
Score 2 if included, 0 if omitted
2. Quality of minutes of shareholders
meeting(s)
(a) Voting method and vote counting
system declared before the AGM begins
Score 2 if declared, 0 if not
(b) AGM minutes show an
opportunity for shareholders to ask
questions/ raise issues during the past
year, along with a record of questions
Score 2 if both items are included, 1 if time
for questions is allotted but answers/issues
not recorded, 0 if both items are missing
(continued on next page)
Appendix A (continued)
and answers
(c) Minutes show voting results for
each agenda item, including both for
and against vote tallies
Score 2 if both items included, 1 if only one
item is shown, 0 if missing
C. Shareholder participation in AGM Total of seven items Ferris et al. (2003), Fich and Shivdasani
(2005), Gillian and Starks (2000), and
Karpoff et al. (1996)
1. Names of attending board members
recorded in the AGM minutes
Score 2 if recorded, 0 if not
2. Attendance by chairman of the board Score 2 if chairman attended the last two
AGMs; 1 if attended only one meeting; 0 if
not attending either
3. Attendance by CEO/Managing
Director/President (top executive ofcer)
attended the last two AGMs
Score 2 if chairman attended the last two
4. Attendance by chairman of the audit
committee
5. Attendance by chairman of the
Compensation/Remuneration Committee
6. Attendance by chairman of the
Nomination Committee
7. Additional AGM/EGM agenda item(s)
included in the meeting but omitted
from the meeting notice
Score penalty of 0 if no items included; 1
(penalty) if included
D. Takeover rules and anti-takeover
defenses
Total of three items Bhagat and Brickley (1984), Claessens et al.
(2002, 2000), Jensen and Meckling (1976),
La Porta et al. (1999), McConnell and
Servaes (1990), Morck et al. (1988), and
Shleifer and Vishny (1986)
1. Cross shareholding apparent Score 2 if no apparent cross-holding, 1 if
cross-holdings are likely; 0 if obvious
evidence of cross-holding
2. Pyramid holding apparent Score 2 if no evidence of pyramidal
structure; 1 if pyramid shareholding is
likely; 0 if obvious evidence of pyramiding
3. Board members holdings Score 2 if directors in total hold more than
25% of the outstanding shares; 0 if not
II. Treatment of shareholders Total of 13 items; maximum score = 24
(15% of CGI)
A. Voting rights for shares Total of three items Bhagat and Brickley (1984),
Givoly and Palmon (1985),
Grossman and Hart (1988),
La Porta et al. (1997, 1998)
1. Voting rights for shares Score 2 if only one class of share with one-
share, one-vote; 1 if more than one class of
shares has higher, but not excessive, voting
rights; 0 if voting rights are excessive, e.g.,
50% or more voting rights per 10% of capital
2. Minority shareholders can inuence
board composition
Score 2 if mechanism is offered; 0 if none
3. Cumulative voting used to elect
board members
Score 2 if offered (bonus); 0 if not
B. Shareholder conict Total of six items Cheung et al. (2006), Friedman et al. (2003),
Johnson et al. (2000), La Porta et al. (1997,
1998)
1. System established to prevent the
use of material inside information and
inform all employees, managers, and
board members
Score 2 if system is established; 0 if not
2. Insider trading cases involving
company directors and/or managers in
the past two years
Score 2 if no instance; 0 if one or more
instances
3. Raionale/explanation offered for
related-party transactions affecting the
corporation before conducting related-
party transactions that require
shareholders approval
Score 2 if no related-party transactions
were observed or if company provides full
disclosure (name, relationship, policy, value
of transaction, and board opinion); 1 if
some but not all information is provided; 0
if no rationale provided for transaction(s)
4. Non-compliance case regarding
related-party transactions in the past
two years
Score 2 if no non-compliance cases; 1 if
company received a disclosure waiver from
the exchange and/or regulator; 0 if non-
compliance cases exist
5. Level of business interconnections Score 2 for lowest level of
interconnections;1 for moderate level; 0 for
highest level of interconnections
6. Related-party transactions to non-
subsidiary companies
Score 0 if no transactions that could be
considered as nancial assistance to non-
subsidiary companies; 1 (penalty) if
transaction(s) exists
C. Proxy voting Total of three items Brickley (1986), La Porta et al. (1997, 1998),
Maug and Rydqvist (2001), and Pound
(1991)
1. Proxy voting facilitated Score 2 if proxy voting forms are sent to
shareholders along with the AGM notice; 0
if not
2. Shareholders know the documents
required to give proxy
Score 2 if the AGM notice species the
documents required; 0 if not
3. Notarization requirement for proxy
appointment
Score 2 if appointments are not required to
be notarized; 0 if notarization is needed
D. AGM procedures Total of one item
1. Advance notice of the AGM Score 2 if shareholders receive notice 30
days or more before the meeting; 1 if 2130
days notice is given; 0 if less than 21 days
III. Role of stakeholders Total of nine items; maximum score = 14
(10% of CGI)
A. Safety and welfare policy/benets of
employees
Score 0.67 if explicitly mentioned with
comprehensive coverage; 0.33 if only
supercial coverage given, 0 if not
mentioned
Berman et al., 1999; Connelly and
Limpaphayom 2004 and La Porta et al.
(1997, 1998)
B. Provident fund/retirement fund
provided for its employees
Score 0.67 if provided; 0.33 if not
C. Professional development training
programs for employees
Score 0.67 if explicitly mentioned with
comprehensive coverage; 0.33 if only
supercial coverage given; 0 if not
mentioned
D. Role of customers Score 2 if explicitly mentioned with
comprehensive coverage; 1 if only
mentioned
E. Environmental issues Score 2 if explicitly mentioned, with
standards and explanation (e.g., ISO
14000); 1 if disclosure only to the extent
required by law; 0 if not mentioned
F. Role of suppliers/business partners Score 2 if explicitly mentioned with
mentioned
G. Obligations to shareholders Score 2 if explicitly mentioned with
mentioned
H. Broader obligations to society and/or
the community
Score 2 if explicitly mentioned with
mentioned
I. Obligations to creditors Score 2 if explicitly mentioned with
comprehensive coverage, 1 if only
supercial coverage given, 0 if not
mentioned
IV. Disclosure and transparency Total of 32 items; maximum score = 40
(25% of CGI)
A. Disclosure of material information Total of four items Bushman et al. (2004), Claessens et al.
(2002), Himmelberg et al. (1999), La Porta
et al. (1998, 1999), and Mallette and Fowler
(1992)
Transparency of the ownership
structure
1. Breakdown of shareholding structure Score 2 if provided; 0 if not
2. Benecial ownership Score 2 if easily identied; 1 if shares held
by nominees or holding companies total
less than 15percent; 0 if shares held by
nominees or holding companies total more
than 15 percent
3. Directors shareholdings Score 2 if disclosed; 0 if not
4. Management shareholdings Score 2 if disclosed; 0 if not
B. Quality of the annual report. Does the
report include:
Total of eight items Boyd (1994), Bushman et al. (2004), Ferris
et al. (2003), Fich and Shivdasani (2005),
Meek et al. (1995), Ryan and Wiggins
(2004), and Singhvi and Desai (1971)
1. Financial performance Score 2 if clear, comprehensive, and
informative; 1 if supercial; 0 if not
available
2. Business operations and competitive
position
Score 2 if clear, comprehensive, and
available
3. Operating risks Score 2 if clear, comprehensive, and
available
4. Board member background Score 2 if full coverage with detailed
background; 1 if limited to a few items; 0 if
not available
5. Identication of independent
directors
Score 2 if identied; 0 if not available
6. Basis of board remuneration Score 2 if detailed compensation provided
for each director; 1 if supercial or
compensation shown in aggregate; 0 if not
available
7. Disclosure of individual directors Score 2 if detailed compensation provided
remuneration for each director; 1 if supercial or
compensation shown in aggregate; 0 if not
available
8. Board meeting attendance of
individual directors
Score 2 if detailed attendance record
provided for each director; 1 if meeting
attendance is listed without breakdown by
director; 0 if not available
C. External disclosure Total of 20 items Ashbaugh et al. (1999), Bushman et al.
(2004), Cheung et al. (2006), Fan and Wong
(2005), Farragher et al. (1994), Gregory et
al. (1994), Hillier and Marshall (2002),
Johnson et al. (2000), Lang and Lundholm
(1993, 1996), and La Porta et al. (1997,
1998)
1. Public communications of related-
party transactions
Score 2 if no related-party transactions
were observed or if company provides full
disclosure (name, relationship, policy, value
of transaction, and board opinion); 1 if
some but not all information is provided; 0
if no information provided
2. Specic policy requiring directors to
report their transactions of company
shares
Score 2 if a specic policy exists; 0 if policy
does not exist or disclosure is only required
of managers
3. Annual audit performed using
independent and reputable auditors
Score 2 if reputable, recognized auditors are
used; 1 if auditor is not approved by the
exchange; 0 if auditor is not disclosed or
afliated with the company
4. Accounting qualications in the
audited nancial statements (other than
the qualication on Uncertainty of
Situation)
Score 2 if an unqualied opinion; 1 if an
unqualied opinion with special mention
items; 0 if a qualied opinion
D. Are multiple channels used to provide
access to information?
1. Annual report Score 0.5 if used; 0 if not
2. Company website Score 0.5 if used; 0 if not
3. Analyst brieng(s) Score 0.5 if used; 0 if not
4. Press conference(s)/press brieng(s) Score 0.5 if used; 0 if not
5. Timely disclosure of nancial reports
during the past 3 years
Score 2 if meeting deadlines every time, 1 if
two or fewer delays, 0 if more than two
delays
6. Contents of the company website
with up-to-date information:
(a) Business operations Score 0.22 if used; 0 if not
(b) Financial statements Score 0.22 if used; 0 if not
(c) Press releases Score 0.22 if used; 0 if not
(d) Shareholding structure Score 0.22 if used; 0 if not
(e) Organization structure Score 0.22 if used; 0 if not
(f) Corporate group structure, if
applicable
Score 0.22 if used; 0 if not
(g) Downloadable annual report Score 0.22 if used; 0 if not
(h) Notice to call shareholders
meeting
Score 0.22 if used; 0 if not
(i) Dual-language website Score 0.22 if used; 0 if not
E. Contact details provided for a specic
Investor Relations person or unit
Score 2 if provided; 0 if not
F. Regulatory sanctions required revision of
nancial statements
Score 0 if no sanctions made or revisions
required during the past year; 1 (penalty)
if company was sanctioned
V. Board responsibilities Total items = 41; maximum score = 50 (30%
of CGI)
A. Index of board monitoring/control
efforts
Total items = 21 Adams (1994), Boyd (1994), Carcello et al.
(2002), Daily et al. (1998), Ferris et al.
(2003), Fich and Shivdasani (2005), Ingley
and van der Walt (2002), La Porta et al.
(1997, 1998), Raghunandan and Rama
(2003), Scarbrough et al. (1998), Turpin and
DeZoort (1998), Vafeas (1999), and Weller
(1988)
1. Written corporate governance rules
describing value system and board
responsibilities
Score 2 if rules are board approved and
disclosed; 1 if rules exist but have not been
approved; 0 if no rules
2. Board of directors provides a code of
ethics or statement of business conduct
for all directors and employees; Board
ensures all are aware of and understand
the code
Score 2 if code exists and is effectively
communicated; 1 if code exists; 0 if no code
exists
3. Corporate vision/mission Score 2 if present; 0 if not
4. Incidences of regulatory of non-
compliance during the past year
Score 2 of no cases of non-compliance with
exchange or regulatory rules; 1 if one case;
0 if two or more cases or one serious
offense case
5. Internal audit function Score 2 if a separate unit in the company, 1
if internal audit function was outsourced; 0
if no internal audit function exists
6. Line of reporting for internal audit
function
Score 2 if reporting to the board audit
committee; 0 if reporting to operating
management only
7. Quality of the audit committee
report in the annual report, containing
the following key items:
(a) Attendance Score 0.286 if available; 0 if not
(b) Internal control Score 0.286 if available; 0 if not
(c) Management control Score 0.286 if available; 0 if not
(d) Proposed auditors Score 0.286 if available; 0 if not
(e) Financial report review Score 0.286 if available; 0 if not
(f) Legal compliance Score 0.286 if available; 0 if not
(g) Overall concluding opinion Score 0.286 if available; 0 if not
8. Orientation for new directors Score 2 if provided, with evidence of
implementation; 0 if not or no evidence
provided
9. Board member training Score 2 if directors have participated in
professional/accredited directors training;
0 if not
10. Board meeting frequency Score 2 if the board met more than four
times in 2005 and more than two times in
2004; 1 if the board met four times in 2005
and two times in 2004; 0 if the board met
less than four times in 2005 and once in
2004
11. Attendance of board members Score 2 if greater than 80% average
attendance during the past 12 months; 1 if
7080% average attendance; 0 if below 70
percent.
12. Risk management policy Score 2 if provided; 0 if not
13. Clear distinction between the roles,
duties, and responsibilities of the board
and management
Score 2 if both board and management
roles are delineated; 0 if not
14. Annual board self-assessment Score 2 if conducted and documented; 0 if
not or undocumented
15. Annual performance assessment of
CEO/MD/President
Score 2 if conducted and documented; 1 if
not or undocumented
B. Assessment of conicts of interest Total items = 1 Coles and Hesterly (2000)
1. Chairman independence Score 2 if the chairman is an independent
director; 0 if not
C. Assessment of use of independent
board committees with independent
members
Total items = 15 Bostock (1995), Brick et al. (2006), Carcello
et al. (2002), Carcello and Neal (2000), Daily
et al. (1998), Klein (1998, 2002), and
Krishnan (2005)
1. Presence of an audit committee,
including the following items:
Score 2 if present; 0 if missing
(a) Charter/Role and responsibilities Score 0.5 if present; 0 if missing
(b) Prole/Qualications Score 0.5 if present; 0 if missing
(c) Independence Score 0.5 if present; 0 if missing
(d) Performance/Meeting Attendance
record
Score 0.5 if present; 0 if missing
2. Presence of a Compensation/
Remuneration Committee, including the
following items:
(b) Committee composition Score 0.5 if composed of a majority of
independent directors; 0 if not.
(c) Committee chairman
independence
Score 0.5 if an independent director; 0 if
not.
(d) Performance/Meeting attendance
record
Score 0.5 if present; 0 if missing
3. Presence of a Nomination
Committee, including the following
items:
(b) Committee composition Score 0.5 if composed of a majority of
independent directors; 0 if not.
(c) Committee chairman
independence
Score 0.5 if an independent director; 0 if
not.
(d) Performance/Meeting attendance Score 0.5 if present; 0 if missing
D. Denition of board independence Total items = 1 Beasley (1996), and Mallette and Fowler
(1992)
1. Director independence dened in
public communications
Score 2 if dened; 0 if not
E. Assessment of communication Total items = 1 Beasley (1996)
1. Separate Board of Directors report
issued, describing the boards
responsibilities in reviewing the rms
nancial statements
Score 2 if the report is issued; 0 if not
F. Management incentive scheme Total items = 1 Core and Guay (2001), DeFusco et al.
(1990), and Yermack (1995)
1. Incentive for top management
through option scheme
Score 2 if exercise period over is over three
years and exercise price(s) are above the
market value at the time of the award; 0 if
not or no option scheme
G. Regulatory compliance Total items = 1 La Porta et al. (1997, 1998)
1. Non-compliance cases 0 if no cases were serious offense during
the past year; 1 (penalty) if otherwise
References
Adams, M.B., 1994. Agency theory and the internal audit. Managerial Auditing
Journal 9, 812.
Agrawal, A., Nagarajan, N.J., 1990. Corporate capital structure, agency costs and
ownership control: the case of all equity rms. Journal of Finance 45, 1325
1331.
Allen, F., Carletti, E., Marquez, R.S., 2009. Stakeholder capitalism, corporate
governance and rm value. Working Paper, University of Pennsylvania.
Anderson, R.C., Reeb, D.M., 2003. Founding family and rm performance. Evidence
from the S&P 500. Journal of Finance 58, 13011328.
Anderson, R.C., Duru, A., Reeb, D.M., 2009. Founders, heirs, and corporate opacity in
the United States. Journal of Financial Economics 92, 205222.
Ashbaugh, H., Johnstone, K.M., Wareld, T.D., 1999. Corporate reporting on the
internet. Accounting Horizons 13, 241257.
Ball, R., 2001. Infrastructure requirements for an economically efcient system of
public nancial reporting an disclosure. In: Litan, R., Herring, R. (Eds.),
Brookings-Wharton Papers on Financial Services. Brookings Institution Press,
Washington, DC.
Beasley, M.S., 1996. An empirical analysis of the relation between the board of
director composition and nancial statement fraud. The Accounting Review 71,
443465.
Bebchuk, L., Cohen, A., Ferrell, A., 2009. What matters in corporate governance?
Review of Financial Studies 22, 783827.
Berman, S.L., Wicks, A.C., Kotha, S., Jones, T.M., 1999. Does stakeholder orientation
matter? The relationship between stakeholder management models and rm
nancial performance. Academy of Management Journal 42, 488506.
Bertrand, M., Johnson, S., Samphantharak, K., Shoar, A., 2008. Mixing family with
business: a study of Thai business groups and the families behind them. Journal
of Financial Economics 88, 466498.
Bhagat, S., Brickley, J.A., 1984. Cumulative voting: the value of minority shareholder
voting rights. Journal of Law and Economics 27, 339365.
Black, B., Jang, H., Kim, W., 2006a. Does corporate governance affect rm value?
Evidence from Korea. Journal of Law, Economics, and Organization 22, 366413.
Black, B., Love, I., Rachinsky, A., 2006b. Corporate governance indices and rms
market values: time-series evidence from Russia. Emerging Markets Review 7,
361379.
Black, B., Kim, W., Jang, H., Park, K.S., 2009. How corporate governance affects rm
value: evidence on channels from Korea. Working Paper, University of Texas.
Bostock, R., 1995. Company responses to Cadbury. Corporate Governance: An
International Review 3, 7277.
Boyd, B.K., 1994. Board control and CEO compensation. Strategic Management
Journal 15, 335344.
Brick, I.E., Palmon, O., Wald, J.K., 2006. CEO compensation, director compensation,
and rm performance. Evidence of cronyism? Journal of Corporate Finance 12,
403423.
Brickley, J.A., 1986. Interpreting common stock returns around proxy statement
disclosures and annual shareholder meetings. Journal of Financial and
Quantitative Analysis 21, 343349.
Brown, L., Caylor, M., 2006. Corporate governance and rm operating performance.
Journal of Accounting and Public Policy 25, 409434.
Bushman, R.M., Piotroski, J.D., Smith, A.J., 2004. What determines corporate
transparency? Journal of Accounting Research 42, 207252.
Carcello, J.V., Neal, T.L., 2000. Audit committee composition and auditor reporting.
The Accounting Review 75, 453467.
Carcello, J.V., Hermanson, D.R., Neal, T.L., 2002. Disclosures in audit committee
charters and reports. Accounting Horizons 16, 291304.
Cheung, Y.L., Rau, R., Stouraitis, A., 2006. Tunneling, propping, and expropriation:
evidence from connected party transactions in Hong Kong. Journal of Financial
Economics 82, 343386.
Cheung, Y.L., Connelly, J.T., Limpaphayom, P., Zhou, L., 2007. Do investors really
value corporate governance? Evidence from the Hong Kong market. Journal of
International Financial Management and Accounting 18, 86122.
Cheung, Y.L., Jiang, P., Limpaphayom, P., Lu, T., 2010. Corporate governance in China:
a step forward. European Financial Management 16, 94123.
Cheung, Y.L., Connelly, J.T., Jiang, P., Limpaphayom, P., 2011. Does corporate
governance predict future performance? Evidence from Hong Kong. Financial
Management 40, 159197.
Claessens, S., Djankov, S., Lang, L.H.P., 2000. The separation of ownership and
control in East Asian corporations. Journal of Financial Economics 58, 81
112.
Claessens, S., Djankov, S., Fan, J., Lang, L.H.P., 2002. Disentangling the incentive
and entrenchment effects of large shareholdings. Journal of Finance 57,
27412771.
Credit Lyonnais Securities Asia (CLSA), 2002. Corporate governance watch:
corporate governance in emerging markets (February). Research & Sales
Ofces, CLSA Ltd.
Coles, J.W., Hesterly, W.S., 2000. Independence of the chairman and board
composition: rm choices and shareholder value. Journal of Management 26,
195214.
Connelly, J.T., Limpaphayom, P., 2004. Environmental disclosure and rm
performance. Evidence from Thailand. Journal of Corporate Citizenship 13,
137149.
Core, J.E., Guay, W.R., 2001. Stock option plans for non-executive employees. Journal
of Financial Economics 61, 253287.
Daily, C.M., Johnson, J.L., Ellstrand, A.E., Dalton, D.R., 1998. Compensation
committee composition as a determinant of CEO compensation. Academy of
Management Journal 41, 209220.
DeFusco, R.A., Johnson, R.R., Zorn, T.S., 1990. The effect of executive stock option
plans on stockholders and bondholders. Journal of Finance 45, 617627.
Demsetz, H., Lehn, K., 1985. The structure of corporate ownership: causes and
consequences. Journal of Political Economy 93, 11551177.
Doidge, C., Karolyi, G.A., Stulz, R., 2007. Why do countries matter so much for
corporate governance? Journal of Financial Economics 86, 139.
Drobetz, W., Schillhofer, A., Zimmerman, H., 2003. Corporate governance and
expected stock returns: evidence from Germany. European Financial
Management 10, 267293.
Durnev, A., Kim, E.H., 2005. To steal or not to steal: rm attributes, legal
environment, and valuation. Journal of Finance 60, 14611493.
Easterbrook, F.H., 1984. Two agency-cost explanations of dividends. The American
Economic Review 74, 650659.
Fama, E., Jensen, M.E., 1983. Separation of ownership and control. The Journal of
Law and Economics 26, 301325.
Fan, J.P.H., Wong, T.J., 2005. Do external auditors perform a corporate governance
role in emerging markets? Evidence from East Asia. Journal of Accounting
Research 43, 3572.
Farragher, E.J., Kleiman, R., Bazaz, M.S., 1994. Do investor relations make a
difference? The Quarterly Review of Economics and Finance 34, 403412.
Ferris, S.P., Jagannathan, M., Pritchard, A.C., 2003. Too busy to mind the business?
Monitoring by directors with multiple board appointments. Journal of Finance
58, 10871111.
Fich, E., Shivdasani, A., 2005. Are busy boards effective monitors? Journal of Finance
61, 689724.
Friedman, E., Johnson, S., Mitton, T., 2003. Propping and tunneling. Journal of
Comparative Economics 31, 732750.
Gillian, S.L., Starks, L.T., 2000. Corporate governance proposals and shareholder
activism: the role of institutional investors. Journal of Financial Economics 57,
275305.
Givoly, D., Palmon, D., 1985. Insider trading and the exploitation of inside
information: some empirical evidence. Journal of Business 58, 6987.
Gompers, P., Ishii, J., Metrick, A., 2003. Corporate governance and equity prices.
Quarterly Journal of Economics 118, 107155.
Gordon, L.A., Pound, J., 1993. Information, ownership structure, and shareholder
voting: evidence from shareholder-sponsored corporate governance proposals.
Journal of Finance 48, 697718.
Gregory, A., Matatko, J., Tonks, I., Purkis, R., 1994. UK directors trading: the impact
of dealings in smaller rms. The Economic Journal 104, 3753.
Grossman, S., Hart, O., 1988. One share-one vote and the market for corporate
control. Journal of Financial Economics 20, 175202.
Gugler, K., 2003. Corporate governance, dividend payout policy, and the
interrelation between dividends, R&D, and capital investment. Journal of
Banking & Finance 27, 12971321.
Harris, M., Raviv, A., 1988. Corporate governance. Voting rights and majority rules.
Journal of Financial Economics 20, 203235.
Healy, P.M., Palepu, K.G., 2001. Information asymmetry, corporate disclosure, and
the capital markets: a review of the empirical disclosure literature. Journal of
Accounting and Economics 31, 405440.
Hillier, D., Marshall, A.P., 2002. The market evaluation of information in directors
trades. Journal of Business Finance & Accounting 29, 77110.
Himmelberg, C.P., Hubbard, A.G., Palia, D., 1999. Understanding the determinants of
managerial ownership and the link between ownership and performance.
Journal of Financial Economics 53, 353384.
Hwang, B., Kim, S., 2009. It pays to have friends. Journal of Financial Economics 93,
138158.
Ingley, C., van der Walt, N., 2002. Board dynamics and the politics of appraisal.
Corporate Governance: An International Review 10, 163174.
James, H., 1999. Owner as manager, extended horizons and the family rm.
International Journal of the Economics of Business 6, 4156.
Jensen, M.C., 1986. Agency costs of free cash ow, corporate nance, and takeovers.
American Economic Review 76, 323329.
Jensen, M.C., 2002. Value maximization, stakeholder theory, and the corporate
objective function. Business Ethics Quarterly 12, 235.
Jensen, M.C., Meckling, W., 1976. Theory of the rm: managerial behavior,
agency costs and ownership structure. Journal of Financial Economics 13,
305360.
Johnson, B.W., Magee, R.P., Nagarajan, N.J., Newman, H.A., 1985. An analysis of the
stock price reaction to sudden executive deaths: implications for the
managerial labor market. Journal of Accounting and Economics 7, 151174.
Johnson, S., La Porta, R., Lopez-de-Silanes, F., Shleifer, A., 2000. Tunneling. American
Karpoff, J.M., Malatesta, P.H., Walkling, R.A., 1996. Corporate governance and
shareholder initiatives: empirical evidence. Journal of Financial Economics 42,
365395.
Khanna, T., Palepu, K.G., Srinivasan, S., 2004. Disclosure practices of foreign
companies interacting with US markets. Journal of Accounting Research 42,
475508.
Khantavit, A., Polsiri, P., Wiwattanakantang, Y., 2004. Did families lose or gain
control after the East Asian nancial crisis? Evidence from Thailand. In: Fan, J.,
Hanazaki, M., Teranishi, J. (Eds.), Designing Financial Systems in East Asia and
Japan: Toward a Twenty-First Century Paradigm. Routledge, London.
Klapper, F., Love, I., 2003. Corporate governance, investor protection, and
performance in emerging markets. Journal of Corporate Finance 195, 126.
Klein, A., 1998. Firm performance and board committee structure. Journal of Law
and Economics 41, 275303.
Klein, A., 2002. Economic determinants of audit committee independence. The
Accounting Review 77, 435452.
Krishnan, J., 2005. Audit committee quality and internal control: an empirical
analysis. The Accounting Review 80, 649675.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R.W., 1997. Legal determinants
of external nance. Journal of Finance 52, 11311150.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R.W., 1998. Law and nance.
Journal of Political Economy 106, 11131155.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., 1999. Corporate ownership around the
world. Journal of Finance 54, 471517.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R.W., 2000a. Agency problems
and dividend policies around the world. Journal of Finance 55, 133.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R.W., 2000b. Investor
protection and corporate governance. Journal of Financial Economics 58, 327.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R.W., 2002. Investor protection
and corporate valuation. Journal of Finance 3, 11471170.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., 2006. What works in securities laws?
Journal of Finance 51, 132.
Lang, M., Lundholm, R., 1993. Cross-sectional determinants of analyst ratings of
corporate disclosures. Journal of Accounting Research 31, 246271.
Lang, M.H., Lundholm, R.J., 1996. Corporate disclosure policy and analyst behavior.
Accounting Review 71, 467492.
Lehn, K., Patro, S., Zhao, M., 2007. Governance indexes and valuation: which causes
which? Journal of Corporate Finance 13, 907928.
Limpaphayom, P., Connelly, J.T., 2004. Thailand country report. In: Nam, S.W., Nam,
I.C. (Eds.), Corporate Governance in Asia: Recent Evidence from Indonesia,
Republic of Korea, Malaysia, and Thailand. Asian Development Bank Institute,
Tokyo.
Lins, K.V., 2003. Equity ownership and rm value in emerging markets. Journal of
Financial and Quantitative Analysis 38, 159184.
Mallette, P., Fowler, K.L., 1992. Effects of board composition and stock ownership on
the adoption of poison pills. Academy of Management Journal 35, 10101035.
Mallin, C., 2001. Institutional investors and voting practices: an international
comparison. Corporate Governance: An International Review 9, 118126.
Maug, E., Rydqvist, K., 2001. What is the function of the shareholder meeting?
Evidence from the US proxy voting process. Working Paper, Humboldt
University of Berlin.
McConnell, J., Servaes, H., 1990. Additional evidence on equity ownership and
corporate value. Journal of Financial Economics 27, 595612.
Meek, G.K., Roberts, C.B., Gray, S.J., 1995. Factors inuencing voluntary annual
report disclosures by US, UK, and continental European multinational
corporations. Journal of International Business Studies 26, 555572.
Mitton, T., 2002. A cross-rm analysis of the impact of corporate governance on the
East Asian nancial crisis. Journal of Financial Economics 64, 215241.
Mitton, T., 2004. Corporate governance and dividend policy in emerging markets.
Emerging Markets Review 5, 409426.
Morck, R., Shleifer, A., Vishny, R., 1988. Management ownership and market
valuation. Journal of Financial Economics 20, 293315.
Murphy, K.J., 1999. Executive compensation. In: Ashenfelter, O., Card, D. (Eds.),
Handbook of Labor Economics, vol. 3b. Elsevier, Amsterdam.
Nam, S.W., Nam, I.C., 2004. Corporate Governance in Asia: Recent Evidence from
Indonesia, Republic of Korea, Thailand, and Malaysia. Asian Development Bank
Institute, Tokyo.
OECD (Organization of Economic Co-operation and Development), 1999. Principles
of Corporate Governance. OECD, Paris.
OECD (Organization of Economic Co-operation and Development), 2004. Principles
of Corporate Governance. OECD, Paris.
Perez-Gonzalez, F., 2006. Inherited control and rm performance. American
Pound, J., 1991. Proxy voting and the SEC: investor protection versus market
efciency. Journal of Financial Economics 29, 241285.
Raghunandan, K., Rama, D.V., 2003. Audit committee composition and shareholder
actions: evidence from voting on auditor ratication. Auditing: A Journal of
Practice & Theory 22, 253263.
Romano, R., 2005. The Sarbanes-Oxley Act and the making of quack corporate
governance. Yale Law Journal 114, 15211611.
Rozeff, M., 1982. Growth, beta and agency costs as determinants of dividend payout
ratios. Journal of Financial Research 5, 249259.
Ryan, H.E., Wiggins, R.A., 2004. Who is in whose pocket? Director compensation,
board independence, and barriers to effective monitoring. Journal of Financial
Economics 73, 497524.
Scarbrough, D.P., Rama, D.V., Raghunandan, K., 1998. Audit committee composition
and interaction with internal auditing: Canadian evidence. Accounting Horizons
12, 5162.
Sersansia, S., Nimmansomboon, W., 1996. Public Limited Companies Act BE 2535.
Nititham Publishing House, Bangkok.
Shleifer, A., Vishny, R.W., 1986. Large shareholders and corporate control. The
Journal of Political Economy 94, 461488.
Shleifer, A., Vishny, R.W., 1997. A survey of corporate governance. Journal of Finance
52, 737783.
Singhvi, S.S., Desai, H.B., 1971. An empirical analysis of the quality of corporate
nancial disclosure. The Accounting Review 46, 129138.
Stein, J., 1989. Efcient capital markets, inefcient rms: a model of myopic
corporate behavior. Quarterly Journal of Economics 103, 655669.
Studwell, J., 2007. Ties that bind. Newsweek 23, 2433, July.
Turpin, R.A., DeZoort, F.T., 1998. Characteristics of rms that include an audit
committee report in their annual report. International Journal of Auditing 2, 35
48.
Vafeas, N., 1999. Board meeting frequency and rm performance. Journal of
Financial Economics 53, 113142.
Villalonga, B., Amit, R., 2006. How do family ownership control and management
affect rm value? Journal of Financial Economics 80, 385417.
Weller, S., 1988. The effectiveness of corporate codes of ethics. Journal of Business
Ethics 7, 389395.
Wiwattanakantang, Y., 2001. Controlling shareholders and corporate value:
evidence from Thailand. Pacic-Basin Finance Journal 9, 323362.
Yermack, D., 1995. Do corporations award CEO stock options effectively? Journal of
Financial Economics 39, 237269.
Yermack, D., 1996. Higher market valuation of companies with a small board of
directors. Journal of Financial Economics 40, 185211.
Zhuang, J., Edwards, D., Webb, D., Capulong, M.V., 2000. Corporate governance and
nance in East Asia. Asian Development Bank, Manila.

The Effect of Corporate Governance and Ownership Structure On Firm Value in Thailand

Enviado por

Dados do documento

Título original

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

The Effect of Corporate Governance and Ownership Structure On Firm Value in Thailand

Enviado por

Direitos autorais:

Formatos disponíveis

Form versus substance: The effect of ownership structure

and corporate governance on rm value in Thailand

Você também pode gostar