Pyramidal Structure, Firm Investment and Ultimate Owners' Empire-building Motives

摘要

This paper investigates how the pyramid structure accommodates the ultimate owner's (UO) empire-building motives through their firm's investment exploitation. By creating a situation in which the actual ownership or cashf low rights (CFR) and control (CR) are separated, the pyramid structure offers UOs the ability to exploit their control of the company's resources for private benefits creation without repercussion. The empirical tests are conducted in the case of Malaysia using three-stage least squares regression during 2001-2004. The empirical results suggest that the pyramid structure accommodates UOs'private benefits creation in the form of empire building, leading to pyramidal firms having excessive suboptimal investments. Ultimately, such significant numbers of suboptimal investments affect these firms' valuation negatively because of the financial distress potential.