Owner Control and Firm Performance: A Cross-sectional Study of Swedish Listed Firms with Dual Class of Shares

Abstract

This paper employs agency theories and findings in corporate governance to study a special group of listed firms with dual class of shares and pyramidal structure in Sweden. 44 listed firms with both A and B shares traded on SSE are studied using market data and accounting statements. Determinants of voting concentration are studied both by using a single equation Tobit model and by a simultaneous equations model where control variable and performance variable are treated as endogenous. For comparison, two measures of voting concentration are used: (1) by Shapley-Shubik Power Indices, and (2) by pure voting rights of the controlling owner. The single equation Tobit model indicates that growth rate is negatively related to the voting concentration. Also, firms with better performance in terms of return on assets tend to have a more concentrated voting structure. However, performance in terms of market-to-book ratio is negative and significant in relation to voting concentration when voting power of the controlling owner is evaluated at simple majority but not at the super majority. Higher debt ratio contributes to voting concentration, especially under super majority voting rule. In the simultaneous equations system, the results show that firms with higher market-to-book ratio tend to have lower voting concentration as found in single equation Tobit model. Most significantly, firms with higher voting concentration tend to have lower market-to-book ratios but higher accounting profits. Higher debt ratio facilitates higher degree of owner control but higher borrowing does not necessarily provide outside/bank monitoring especially when the firm and the financier can collude. The discount on the market-to-book ratio for firms with concentrated voting control serves as a counter argument for the existence of a bank monitoring mechanism.