The Influence of Ownership and Control Structures on Firms’ Performance: Evidence from Brazil

Abstract

This paper aims at evaluating the influence of ownership and control concentration as well as of characteristics of the controlling shareholders on the performance of limited liability companies. To tackle this objective, a panel analysis is carried out relying on data over the period 1997-2002, compiled from financial and ownership structure reports firms in Brazil are required to file to the stock market regulator. The main findings are the following: (1) high voting rights by the largest ultimate shareholder are negatively associated with firms' returns on assets, vindicating the thesis of minority shareholders' expropriation by controlling shareholders; (2) the presence of either pyramids or non-voting right shares has a significant negative impact on the largest firms' performance; and (3) among the largest corporations, those whose largest ultimate shareholder is a foreign investor tend to yield higher returns on assets than those controlled by families while pyramid ownership structures render them systematically under-performing. These results are in accordance with the literature that associates large voting power, pyramidal schemes, non-voting right shares, and weak disclosure with expropriation of outsider investors.