When Do Owners Make A Difference? A Comparison of Market-Centered versus Bank-Centered Governance

Abstract

Our analysis examines whether concentrated ownership works differently in two distinct governance regimes: market-centered (US firms) and bank-centered (Japanese Keiretsu firms). We also investigate whether the impact of ownership concentration varies depending on economic conditions. We propose that the impact of concentrated ownership is not homogeneous over all ownership levels. We argue that as ownership stakes rise, owner monitoring can turn to owner entrenchment. The empirical methodology employed in this research allows us to detect such inflection points. Our results for the US sample of firms suggests that in weaker economic times, concentrated ownership produces greater entrenchment effects as opposed to monitoring effects, in general. However, among Keiretsu firms, we observed a marked orientation toward monitoring during periods of slower economic growth.