Ownership Strucure ad the Performance of Belgian Listed Firms

In this study we investigate empirically the relationship between ownership structure of Belgian listed firms, and their performance measured by Tobin’s Q. We focus on the management and the largest shareholders equity ownership. We use first a cross-sectional estimation from 1991 to 1996. Second, we use panel data estimation to control whether the results found cross-sectionally are not due to unobserved firm heteroeneity. The use of panel data confirms the results obtained cross-sectionally for managerial ownership, that is, the relationship between the fraction of equities held by managers and Tobin’s Q is negative. However, panel data results for the relationship between largest sharholders equities ownership and Tobin’s Q become positive, while it is negative cross-sectionally. These results indicate that there is firm heterogeneity which is not captured in the cross-section estimation.Corporate governance, managerial ownership,largest shareholders ownership,firm performance,Tobin’sQ,cross-sectional models,panel data

Internal Capital Market Efficiency of Belgian Holding Companies

In this paper, we raise the following two questions : (1) do Belgian holding companies operate an internal capital market to transfer financial resources in between their subsidiaries ? And if yes, (2) is the internal capital market efficient ? To answer the first question, we check if the group cash flow is a determinant of the investment’s spending of group members. The answer is positive if the holding’s subsidiary is affilliated to a coordinate center and negative otherwise. To answer the second question, we evaluate if internal transfers are driven by efficiency. From our estimations, we cannot conclude that Belgian Holding companies have an efficient internal capital market.Investment; Holding; Internal capital market

Illusionary Finance and Trading Behavior

One important aspect of financial market is that there might be some traders that intentionally mislead other market participants by creating illusions in order to obtain a profit. We call this new concept illusionary finance. We present an analysis of how illusions can be created and disseminated in financial markets based on certain psychological principles that explain agents’ decisions under time pressure and polysemous signals. We develop a simple model that incorporates the illusions in the price formation process. Furthermore, using powerful simulations, we show how illusions can be incorporated, directly or indirectly, in the expected prices of the traders.Illusionary Finance; Behavioral Finance; Evolutionary Finance; Neuroeconomics

Competition, loan rates, and information dispersion in nonprofit and for-profit microcredit markets

We describe the competitive environment of microcredit markets globally and we study the effects of competition on loan rates of microfinance institutions (MFIs). We use a new database from rating agencies, covering 379 for-profit and nonprofit MFIs in 67 countries over 2002-2008. Controlling for interest rate ceilings and other countryspecific factors, we first find that nonprofits are relatively insensitive to industry-wide concentration changes, while for-profits charge significantly lower rates in less concentrated markets. Second, we find spillover effects between the for-profit and nonprofit segments. Third, we show that the effects of concentration are consistent with an information dispersion mechanism

Competition, loan rates and information dispersion in microcredit markets

We study the effects of competition on loan rates and portfolio-at-risk in microcredit markets using a new database from rating agencies, covering 379 microbanks located in 67 countries between 2002 and 2008. Our study reveals different competitive effects in nonprofit and for-profit microbanks. We find that for-profit microbanks charge significantly lower rates and exhibit improved portfolio-at-risk in less concentrated markets. In particular, the effect of concentration on loan rates is nearly three times the one reported in previous studies in banking. In contrast, nonprofit microbanks are relatively insensitive to changes in concentration. We control for interest rate ceilings, which very significantly reduce rates in for-profit microbanks. However, our study also uncovers a competitive interplay between for-profit and nonprofit microbanks. In particular, the PAR of nonprofit microbanks deteriorates when the proportion of profit-oriented microbanks increases. Finally, we find evidence consistent with dispersion of borrower-specific information among competing microbanks in the for-profit sector, even after controlling for the presence of credit registries

Cash holding and control-oriented finance

We critically reassess the notion that high liquid asset holding by firms faced with weak investor protection is evidence of managerial rent extraction. We show that firms facing agency problems may establish tight controls over management through concentrated ownership. Using data on Belgian listed firms between 1991 and 2006, we find a strong positive association between ownership concentration and cash holding. This indicates a precautionary motive on the part of the controlling shareholders who highly value control. We also find that firm market valuation is positively affected by the amount of cash held by firms. On the other hand, managerial ownership has no impact. These results are consistent with the hypothesis that firms' owners are pursuing a rational strategy to mitigate agency costs in the face of weak investor protections

Large powerful shareholders and cash holding

We study the relationship between liquid asset holding and the pattern of share ownership and control structures within the firm. We explore these issues using a data set of Belgian firms that is particularly well suited to studying the institutions of control oriented finance. The data include information on ownership concentration, voting alliances, managerial ownership, membership in family groups, institutional cross-share holdings, and coordination centers which under Belgian law permit consolidation of earnings and cash flow for a group of firms. We show that financial structures in Belgium are strongly control oriented as evidenced by the very high levels of observed ownership concentration and the prevalence of pyramids, voting alliances, and participation infamily groups. We find that the level of liquid asset holding is positively associated with ownership concentration and that this effect is particularly marked for family firms. Given the diffculties of family firms in achieving effective wealth diversification we interpret these results as indicating liquid asset holding is largely motivated by risk aversion. Cash holding is negatively associated with institutional cross share holdings, suggesting that these cross holdings facilitate an effective internal capital market. We find little evidence that managers have an independent influence on cash holdings