Dividend payouts: majority control and rent extraction

In Eurasia, Turkey has a “crony” capitalist system with majority control and business groups (BGs) in the hands of a few families. These business groups are often organised around a holding company. We analyse the dividend payouts of family controlled Borsa Istanbul companies, which are affiliated to holding and non-holding BGs. We investigate and quantify the effects of several control-enhancing mechanisms (CEMs) on dividend payouts. We use precise quantitative proxies for CEMs to measure the divergence between control and ownership rights. Supporting the rent extraction hypothesis, holding business group companies have lower dividend payouts as the divergence between control and ownership rights widens and the pyramid wedge increases. However, controlling foreign-family coalitions in holding business group companies curb the rent extraction problem by having a positive effect on the dividend payouts. Overall, for family controlled holding BG companies, the effects of company-specific financial control variables on dividend payouts are stronger than the effects of CEMs. For family controlled non-holding BG companies, there is no empirical support for either the rent extraction or the reputation building hypotheses. The company-specific financial control variables are the main determinants of dividend payouts for family controlled non-holding BG companies

The impact of control structures on firm value

The purpose of this study is to investigate the impact of control structures on the value of family-controlled firms in Turkiye, an emerging market. Turkish firms are usually affiliated with family-controlled business groups. Families control business group firms through pyramid structures and dual-class shares, which results in a control–ownership rights wedge. In this study, I use precise quantitative measures for the control–voting rights wedge (pyramid wedge) and the voting–ownership rights wedge (dual-share wedge) to analyze the impact of control-enhancing mechanisms on firm valuation. The empirical results of the panel data estimation indicate a negative relationship between firm value and the control–voting rights wedge. However, the voting–ownership rights wedge does not affect firm valuation. This study also shows that foreign-family coalition and CEO duality have a positive impact on firm value