Int. j. econ. manag. soc. sci., Vol(3), No (10), October, 2014. pp.

562-568

TI Journals

International Journal of Economy, Management and Social Sciences

www.tijournals.com

ISSN:
2306-7276

Copyright 2014. All rights reserved for TI Journals.

Assessing the Relationship between Ownership Structure, Corporate

Cash Holdings and Stock Prices on Tehran Stock Exchange
Narges Shahraki *
Department of Accounting, Shahrood Branch, Islamic Azad University, Shahrood, Iran

Mansoor Garkaz
Associate Professor of Accounting, Islamic Azad University, shahrood
*Corresponding author: nargesshahraky@yahoo.com

Keywords

Abstract

Institutional ownership
Management ownership
Private ownership
Corporate liquidity
Stock prices
Panel data analysis

The present study aims to assess the relationship between ownership structure, corporate cash holdings
and stock prices. It is an analytical research which applied panel data analysis and desk approaches, and
investigated cause and effect relations. 112 listed companies on Tehran Stock Exchange were examined
in this research over a period, extending from 2007 to 2012 (672 firm-years). The obtained findings of
first hypothesis testing indicated a direct significant relationship between institutional ownership and
corporate stock prices. Testing the second hypothesis proved a direct significant relationship between
management ownership and stock prices. Third hypothesis was rejected and no significant relationship
association was observed between private ownership and stock prices. Finally, fourth hypothesis testing
showed a direct significant relationship between corporate liquidity and stock prices.

1.

Introduction

Managers are responsible for maximizing wealth, so they are being evaluated to achieve this goal. Stock corporations need to separate
management and ownership. Net earnings, reported in financial statements, are also of considerable importance in shareholders decisionmakings, since shareholders are the main users of financial statements. Therefore, it is assumed that the firms ownership structure can
make behavioral changes, since they are observed by a multitude of investors. Different institutions take various strategies to actively
observe the management, and this question should be replied whether different ownership structures affect stock prices or not.
It has been proved that managers tend to hold more cash, since they want to take private advantage of the assets. Economic institutions also
keep most of their assets in the form of cash holdings, and this issue attracted many researchers attention. By and large, managers attempt
to hold a sufficient and optimal amount of liquidity which does not bring about any losses and can provide more opportunities. Sufficient
liquidity level varies in different periods for different firms. Empirical researches have demonstrated that the firms liquidity level is
purposeful and based on specific programs. Which factors affect liquidity level?
Exorbitant amount of liquidity can cause conflicts between managers and shareholders. Furthermore, it increases managers liberty, and
damages shareholders profits. In other words, exorbitant liquidity can cause opportunity costs, since cash holdings bring a low rate of
return and affect market return and stock prices. On the other hand, insufficient level of cash holdings can bring opportunity loss in the
future. Thus it can negatively affect future performance, return and stock prices. However, ignoring agency conflict theory, some scholars
believe in the profitability of cash holdings and probable increase in future opportunities, expected return and stock prices.

2.

Research Background

Eslami Bidgoli and Moghimi (2013) chose a sample of 39 companies from 2005 to 2009 and assessed the effect of ownership structure on
the risk-taking of listed companies on Tehran stock exchange. Their findings indicate that there is a significant relationship between
ownership structure (which falls into three levels of one major shareholder, one or more major shareholders, and small holders) and stock
price volatility risk or standard deviation of return on stock which was examined during a 5-year period [5].
Namazi and Ebrahimi (2013) selected a sample of 82 companies from 2002 to 2009 and examined the effect of ownership structure and
board of directors on the technical efficiency of listed companies on Tehran stock exchange. Their obtained findings show that there is a
positive relationship between ownership concentration, institutional ownership and independence of board of directors and technical
efficiency; while only the relationship between institutional ownership and efficiency is significant [8].
Aghaei et al. (2009) studied the effective elements in the firms cash holdings. The findings of their research prioritized negative elements
in cash holdings as follows: account receivable, net working capital, inventories, and short-term liabilities. Furthermore, they prioritized
positive elements in the following manner: opportunities for firm growth, dividend interest, cash flow volatility, and net profit volatility.
But the variables of long-term liabilities and firm size were not found significantly effective in cash holdings [1].
Yanto (2011) examined the relationship between the mechanisms of company governance and company value in Singapore. The findings
showed that the companies with less effective company governance tend to keep more cash in the company. Other findings show that due
to flexibility and also the battle between managers and owners, and representation theory; managers keep more cash for caution. In addition
companies with a pyramid structure in ownership keep lower amounts of cash in comparison with single owner companies and are more
valuable [13].

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Assessing the Relationship between Ownership Structure, Corporate Cash Holdings and Stock Prices on Tehran Stock Exchange
International Journal of Economy, Management and Social Sciences Vol(3), No (10), October, 2014.

Rubin (2007) conducted a research entitled Ownership Level, Ownership Concentration and Liquidity in which 20 season-year data of
the United States Stock Exchange were applied. He examined the link between the liquidity of a firm's stock and its ownership structure,
specifically, how much of the firm's stock is owned by insiders and institutions, and how concentrated is their ownership. He found that the
liquidity-ownership relation is mostly driven by institutional ownership rather than insider ownership. Importantly, liquidity is positively
related to total institutional holdings but negatively related to institutional block holdings. Findings of this study are consistent with the
hypotheses that while the level of institutional ownership proxies for trading activity, the concentration of such ownership proxies for
adverse selection [10].

3.

Research Hypotheses

Considering research questions, the following hypotheses were designed:

First major hypothesis: There is a significant relationship between ownership structure and stock prices.
First minor hypothesis: There is a significant relationship between institutional ownership and stock prices.
Second minor hypothesis: There is a significant relationship between management ownership and stock prices.
Third minor hypothesis: There is a significant relationship between private ownership and stock prices.
Second major hypothesis: There is a significant relationship between cash holdings and stock prices.

4.

Research Model

The following models are applied to test research hypotheses (first major hypothesis, and first to fourth minor hypotheses). If i
(coefficients related to independent variables) is at the confidence level of %95, models can be considered significant.
Model 1
Yi ,t OWNCO i ,t CONTRL i ,t i ,t

Yi ,t CASH i ,t CONTRL i ,t i ,t

Model 1.1
Yi,t 0 1 InsOWNCOi ,t 1 Levragei ,t 2TobinQi ,t i ,t

Model 1.2
Yi,t 0 1 MOWNCOi,t 1 Levragei ,t 2TobinQi ,t i ,t

Model 1.3

Yi,t 0 1OthOWNCOi ,t 1 Levragei ,t 2TobinQi,t i,t

Model 1.4

Yi,t 0 1 CASHi ,t 1 Levragei ,t 2 TobinQi,t i,t

Where;
i: firm (sectional units)
t: year
i,t: random error

5.

Methodology

The current study intends to investigate the relationship between corporate cash holdings, ownership structure and stock prices in listed
companies on Tehran Stock Exchange. Since the findings of this article can be utilized in designing stock exchange regulations and laws, it
is an applied research. Moreover, it is an ex-post facto research, since it appraises the associations between several variables, and used
panel data analysis in order to assess the relationship between dependent and independent variables from two different dimensions. In this
research, first panel data analysis is conducted and then, related tests are assessed, and significance or insignificance of independent
variables are explained. SPSS 21, EVIEWS 7 and MINITAB 16 software programs were utilized to test research hypotheses. Results are
analyzed according to the research model and theoretical background.

6.

Statistical population and sampling

Target population of the research is consisting of all listed companies on Tehran Stock Exchange by the end of March 2013 which are 520
companies in 37 industrial groups according to the reports of Securities and Exchange Organization. Thus all listed companies over a sixyear period, extending from 2007 to 2012, were examined in this research.

Narges Shahraki *, Mansoor Garkaz

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International Journal of Economy, Management and Social Sciences Vol(3), No (10), October, 2014.

7.

Dependent variable and its measurement

Firms stock prices ( Yi ,t )

In order to calculate stock prices, the model proposed by Chen (2008) was applied which equals logarithm of stock prices at the end of
fiscal year [2].

8.

Independent variable and its measurement

1-

Institutional ownership ( InsOWNCOi ,t )

According to Dittmar et al. (2003), institutional ownership equals the percentage of cash held by public or state corporations such as
insurance institutions and banks. This variable can be calculated as follows [4]:
Number of stocks possessed by institutional investors

InsOWNCOi ,t =
Total number of stocks
2-

Management ownership ( MOWNCO i ,t )

According to the laws of stock exchanges, each shareholder who possesses %5 of total stocks is considered as a major shareholder and a
member of board of directors. Therefore, in this study the percentage of shareholders, who have at least a member of board of directors in
the company, is calculated (Bahgat et al., 2004).
3- Private ownership ( OthOWNCO i ,t )
It refers to the shareholders who have less than %5 of total stocks and cannot be individually considered as a member of the board of
directors, so they have the least control and power over the firm and board of directors.
4- Corporate cash holdings ( CASH i ,t )
The amount of cash holdings can be assessed based on the study conducted by Pinkotz et al. (2006). Thus it can be written in the following
manner [7]:
Cash balances of a firm at the end of the fiscal year
CASH i ,t =
Book value of total assets

9.

Control variable and its measurement

1-

Financial leverage ( Levragei ,t )

High level of financial leverage shows an increase in liabilities to the cash holdings, so the company may experience bankruptcy. Opler et
la. (1999) found that there is a reverse relationship between liabilities and cash holdings. In order to calculate financial leverage, the model
proposed by Lins et al. (2004) was applied in the present research [9]:

Levrage i ,t

Book value of total liabilities

=
Book value of total assets

TobinQ

i ,t )
2- Investment opportunities (
Tobins Q indicates future investment opportunities, since these opportunities can stimulate the companies to hold more cashes (Chen,
2008) and can be assessed as follows[2]:

(stock market value+ book value of total assets) book value of stocks
TobinQ i ,t =

Book value of total assets

10. Hypotheses Results

Descriptive Statistics of the Data
Mean, standard deviation, minimum and maximum for each of the quantitative variables are provided in the table below:

565

Assessing the Relationship between Ownership Structure, Corporate Cash Holdings and Stock Prices on Tehran Stock Exchange
International Journal of Economy, Management and Social Sciences Vol(3), No (10), October, 2014.

Table 1. Statistics of studys values for quantitative variables

Variable
Stock prices
Institutional ownership
Management ownership
Private ownership
Corporate cash holdings
Financial leverage
Investment opportunities

Observations
672
672
672
672
672
672
672

Mean
3/4782
0/6957
0/2738
0/0304
0/0949
0/6301
0/3605

Standard deviation
0/3940
2/7126
2/4414
0/2712
0/1205
0/2329
0/4189

Minimum
2/ 5478
0/ 2816
0/ 1140
0/ 0160
-0/4488
0/ 0964
0/ 0009

Maximum
4/6617
0/7600
0/2896
0/1088
0/5713
0/7553
2/2781

Skewness
0/193
25/754
-25/754
-25/754
0/057
2/386
1/582

Kurtosis
-0/611
666/168
666/168
666/169
2/682
20/484
3/842

Considering the mean of firms stock prices which is 3.4782, and its minimum and maximum amounts which are respectively 2.5478 and
4.6617, and also skewness and kurtosis of this variable which should be between 0 and 3 to be regarded as a normal variable, normal
distribution of this variable cannot be confirmed. In accordance with descriptive statistics mentioned in the aforementioned table, means of
institutional ownership, management ownership and private ownership of the research sample are respectively +0.6957, +0.2738 and
+0.0304. Means of corporate cash holdings, financial leverage and investment opportunities are also as follows: +0.0949, +0.6301 and
+0.3605.
Findings of research hypotheses testing
First hypothesis testing
First minor hypothesis aims to assess whether there is a significant relationship between institutional ownership and stock prices or not. Its
statistical hypothesis can be written in the following manner:
H0: There is no significant relationship between institutional ownership and stock prices.
H1: There is a significant relationship between institutional ownership and stock prices.
Table 2. Results of Chow and Hausman tests for model 1

Test
Chow
Hausman

Total
672
672

Statistic
F
X2

Statistics amount
59.4729
39.4174

Degree of freedom
(111,557)
3

p-value
0.0000
0.0000

Regarding the results of Hausman test and its p-value (0.0000) which is less than 0.05, H0 is rejected at the confidence level of %95 and H1
is confirmed; therefore, the model can be estimated through the application of fixed effects approach.

Table 3. Results of first hypothesis testing through the application of fixed effects method

Dependent variable: firms stock prices Number of observations: 672 (year-firm)

Variable
Fixed component
Institutional ownership
Financial leverage
Investment
opportunities
Coefficient of determination
F-statistic
p-value

Coefficient
-0/ 6639
1/0025
-0/ 2895
2/2293

t-statistic
-9/ 3916
1/2911
-2/ 9710
17/9692

p-value
0/0000
0/0110
0/0031
0/0000

Relationship
Negative
Positive
Negative
Positive
0.9234
58.9040
0.0000

Estimated model can be written in the following manner:

Yi ,t 0.6639 1.0025InsOWNCOi ,t 0.2895Levragei ,t 2.2293TobinQi ,t i ,t

Due to the fact that t-statistic of institutional ownership is less than 0.05 (0.0110), a significant relationship between institutional ownership
and stock prices is confirmed at the confidence level of %95.
Second hypothesis testing
Second minor hypothesis intend to examine whether there is a significant relationship between management ownership and stock prices or
not. Its statistical hypothesis can be written in the following manner:
H0: There is no significant relationship between management ownership and stock prices.
H1: There is a significant relationship between management ownership and stock prices.

Narges Shahraki *, Mansoor Garkaz

566

International Journal of Economy, Management and Social Sciences Vol(3), No (10), October, 2014.

Table 4. Results of Chow and Hausman tests for model 1.1

Test

Total

Chow
Hausman

672
672

Statistic
F
X2

Statistics amount
59.4729
39.4175

Degree of freedom
(111,557)
3

p-value
0.0000
0.0000

Regarding the results of Hausman test and its p-value (0.0000) which is less than 0.05, H0 is rejected at the confidence level of %95 and H1
is confirmed; therefore, the model can be estimated through the application of fixed effects approach.

Table 5. Results of the second hypothesis testing through the application of fixed effects method

Variable
Fixed component
Management
ownership

Dependent variable: firms stock prices Number of observations: 672 (year-firm)

Coefficient
t-statistic
p-value
Relationship
6665.-0
-9/ 4072
0/0001
Negative
1/1428
1/3911
0/0410
Positive

Financial leverage
Investment
opportunities
Coefficient of determination
F-statistic
p-value

-0/ 2895
2/3193

-2/ 9710
17/8892

0/0421
0/0022

Negative
Positive
0.8954
59.8500
0.0000

Estimated model can be written in the following manner:

Yi ,t 0.6665 1.1428MOWNCOi ,t 0.2895Levragei ,t 2.3193TobinQi ,t i ,t

Due to the fact that t-statistic of management ownership is less than 0.05 (0.0410), a significant relationship between management
ownership and stock prices is confirmed at the confidence level of %95.
Third hypothesis testing
Third minor hypothesis aims to investigate whether there is a significant relationship between private ownership and stock prices or not. Its
statistical hypothesis can be written in the following manner:
H0: There is no significant relationship between private ownership and stock prices.
H1: There is a significant relationship between private ownership and stock prices.

Table 6. Results of Chow and Hausman tests for model 1.2

Test

Total

Statistic

Statistics amount

Degree of freedom

p-value

Chow
Hausman

672
672

F
X2

59.5729
38.5168

(557,111)
3

0.0001
0.0022

Regarding the results of Hausman test and its p-value (0.0022) which is less than 0.05, H0 is rejected at the confidence level of %95 and H1
is confirmed; therefore, the model can be estimated through the application of fixed effects approach.

Table 7. Results of the third hypothesis testing through the application of fixed effects method

Dependent variable: firms stock prices Number of observations: 672 (year-firm)

Variable
Fixed component
Private ownership
Financial leverage
Investment
opportunities
Coefficient of determination
F-statistic
p-value

Coefficient
-0/ 6665
0/0258
-0/ 3895
2/2293

t-statistic
-9/ 4072
0/2911
-2/ 8710
17/9692

p-value
0/0000
0/7710
0/0021
0/0000

Relationship
Negative
Insignificant
Negative
Positive
0.9142
57.9040
0.0000

567

Assessing the Relationship between Ownership Structure, Corporate Cash Holdings and Stock Prices on Tehran Stock Exchange
International Journal of Economy, Management and Social Sciences Vol(3), No (10), October, 2014.

Estimated model can be written in the following manner:

Yi ,t 0.6665 0.0258OthOWNCOi,t 0.3895Levragei,t 2.2293TobinQi,t i ,t
Due to the fact that t-statistic of private ownership is more than 0.05 (0.7710), no significant relationship between private ownership and
stock prices is confirmed at the confidence level of %95.
Fourth hypothesis testing
Second major hypothesis aims to assess whether there is a significant relationship between corporate cash holdings and stock prices or not.
Its statistical hypothesis can be written in the following manner:
H0: There is no significant relationship between corporate cash holdings and stock prices.
H1: There is a significant relationship between corporate cash holdings and stock prices.

Table 8. Results of Chow and Hausman tests for model 1.3

Test
Chow
Hausman

Statistic
F
X2

Statistics amount
58.4408
35.3411

Degree of freedom
(574,111)
3

p-value
0.0084
0.0009

Regarding the results of Hausman test and its p-value (0.0009) which is less than 0.05, H0 is rejected at the confidence level of %95 and H1
is confirmed; therefore, the model can be estimated through the application of fixed effects approach.

Table 9. Results of the fourth hypothesis testing through the application of fixed effects method

Dependent variable: firms stock prices Number of observations: 672 (year-firm)

Variable
Coefficient
t-statistic
p-value
Relationship
Fixed component
-0/ 7775
-8/ 4296
0/0000
Negative
Corporate cash
1/4525
1/9102
0/0066
Positive
holdings
Financial leverage
-0/ 1569
-1/ 3029
0/1931
Insignificant
Investment
2/1884
17/3186
0/0000
Positive
opportunities
Coefficient of determination
0.8129
F-statistic
59.2224
p-value
0.0000

Estimated model, applying Eviews7 software, can be written in the following manner:

Yi ,t 0.7775 1.4525CASHi ,t 0.1569Levragei ,t 2.1884TobinQi ,t i ,t

Due to the fact that t-statistic of corporate cash holdings is less than 0.05 (0.0066), a significant relationship between corporate cash
holdings and stock prices is confirmed at the confidence level of %95

11. Conclusion and discussion

First hypothesis
Owing to the fact that F-statistic is less than 0.05 (0.0000), the whole model is significant at the confidence level of %95. The models
coefficient of determination proves that %92.34 of firms stock prices can be explained through the applied variables in the model. The
variables significance can be also shown according to the table 7-4. Since t-statistic of institutional ownership is less than 0.05 (0.0110),
institutional ownership and stock prices are significantly related to each other at the confidence level of %95; therefore, the first hypothesis
is confirmed. Positive sign for this variable (+1.0025) indicates a direct relationship between institutional ownership and stock prices. One
unit increase in the institutional ownership can enhance stock prices about 1.0025 units. Regarding the obtained results, this conclusion can
be drawn that there is a significant direct relationship between institutional ownership and firms stock prices. Findings of this hypothesis
testing indicate that there is a significant relationship between dependent and independent variables. This research is consistent with the
research conducted by which shows institutional owners have better performance and get access to more information due to stronger
motivations. Findings of the studies accomplished by demonstrate that firms with institutional ownership get access to more information
about future profit.

Narges Shahraki *, Mansoor Garkaz

568

International Journal of Economy, Management and Social Sciences Vol(3), No (10), October, 2014.

Second hypothesis
Due to the fact that F-statistic is less than 0.05 (0.0000), the whole model is significant at the confidence level of %95. The models
coefficient of determination proves that %89.54 of firms stock prices can be explained through the applied variables in the model. The
variables significance can be also shown according to the table 10-4. Since t-statistic of management ownership is less than 0.05 (0.0410),
management ownership and stock prices are significantly related to each other at the confidence level of %95; therefore, the second
hypothesis is confirmed. Positive sign for this variable (+1.1428) indicates a direct relationship between management ownership and stock
prices. One unit increase in the management ownership can enhance stock prices about 1.1428 units. Regarding the obtained results, this
conclusion can be drawn that there is a significant direct relationship between management ownership and firms stock prices. Findings of
this hypothesis testing are consistent with the researchers conducted by Eslami Bidgoli and Moghimi (2013), since they show a significant
relationship between ownership structure and stock price volatility risk or standard deviation of return on stock.
Third hypothesis
Since F-statistic is less than 0.05 (0.0000), the whole model is significant at the confidence level of %95. The models coefficient of
determination proves that %91.42 of firms stock prices can be explained through the applied variables in the model. The variables
significance can be also shown according to the table 13-4. Considering the fact that t-statistic of private ownership is more than 0.05
(0.7710), private ownership and stock prices are not significantly related to each other at the confidence level of %95; therefore, the third
hypothesis is rejected. Regarding the obtained results, this conclusion can be drawn that there is no significant relationship between private
ownership and firms stock prices.
Fourth hypothesis
Since F-statistic is less than 0.05 (0.0000), the whole model is significant at the confidence level of %95. The models coefficient of
determination proves that %81.29 of firms stock prices can be explained through the applied variables in the model. The variables
significance can be also shown according to the table 16-4. Considering the fact that t-statistic of corporate cash holdings is less than 0.05
(0.0066), corporate cash holdings and stock prices are significantly related to each other at the confidence level of %95; therefore, the
fourth hypothesis is confirmed. Regarding the obtained results, this conclusion can be drawn that there is a significant relationship between
corporate cash holdings and firms stock prices. Positive sign for this variable (+1.4525) indicates a direct relationship between corporate
cash holdings and stock prices. One unit increase in the corporate cash holdings can enhance stock prices about 1.4525 units. Regarding the
obtained results, this conclusion can be drawn that there is a significant direct relationship between corporate cash holdings and firms
stock prices.

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