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Asia-Pacific Financial Markets
Published in: Asia-Pacific Financial Markets 4/2018

15-09-2018

A New Measure of Control-Cash Flow Deviation: Cases in Taiwan

Authors: Pei-Gi Shu, Sue-Jane Chiang, Man-Yin Chen

Published in: Asia-Pacific Financial Markets | Issue 4/2018

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Abstract

The traditionally defined measure of deviation fails to capture the possibility that controlling owners might pledge their shares for bank loans and with that money from bank loans to amplify their personal leverage in the stock market. In this study we construct a newly defined measure of deviation that includes pledge ratio into the definition. Using a sample of 2777 firm-year observations in the sampling period of 2011–2015, we find that the newly defined measure of deviation is negatively correlated with firm’s performance and are more capable of dictating firm’s performance than the traditionally defined measure. We further find that the newly defined deviation could better contrast the performance measures between normal firms and financially-distressed firms.
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Footnotes
1
Prior studies fail to reach a consensus on the effect of leverage: some indicate that leverage is irrelevant (Modigliani and Miller 1958); some find a positive relation (e.g., Jensen and Meckling 1976; Brander and Lewis 1986; Grossman and Hart 1986; Jensen 1986), while some find a negative relation (e.g., Myers 1977; Maksimovic and Titman 1991; Titman 1984).
 
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Metadata
Title
A New Measure of Control-Cash Flow Deviation: Cases in Taiwan
Authors
Pei-Gi Shu
Sue-Jane Chiang
Man-Yin Chen
Publication date
15-09-2018
Publisher
Springer Japan
Published in
Asia-Pacific Financial Markets / Issue 4/2018
Print ISSN: 1387-2834
Electronic ISSN: 1573-6946
DOI
https://doi.org/10.1007/s10690-018-9251-8