Abstract
Some of the largest listed firms in Western and Northern Europe are partly owned by foundations. So far, little research exists about the shareholder value effects of foundation ownership. This study aims to close this gap using an event study method. We find that equity markets show a positive reaction following the announcement by a foundation that it intends to decrease its ownership share, whereas we find no reaction when a foundation announces that it intends to increase its ownership share. The positive reaction to an announcement of an ownership share decrease is particularly strong when a foundation holds an equity stake of less than 25%. Further investigations show that our findings are specific for foundations as blockholders and do not occur with other blockholders. Overall, our study shows that equity markets are skeptical about foundations as shareholders. Future research is needed to determine whether this skepticism is due to monitoring problems of foundations, goal divergences between foundations and firms, foundations being hybrid organizations with multiple goals, or legal restrictions that come with this particular form of firm ownership.
Highlights
Foundation-owned firms are firms that are partly or fully owned by charitable or private foundations
We focus on announcements made by foundations to increase or decrease their firm ownership shares and use an event study method to determine shareholder value effects
Comparing foundation-owned firms with foundation ownership above 25% with foundationowned firms where the foundation holds less than 25% of equity, we find that the shareholder value effects of a decrease in foundation ownership are stronger in the latter group
Summary
The literature review is comprised of three parts. The first part defines foundationowned firms as a particular group of firms and provides some background about their unique characteristics. The second part summarizes prior research about the (accounting) performance of foundation-owned firms. The third part summarizes event study results about the shareholder value effects of blockholder ownership
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