Choice Of Ownership Structure Research Articles

FDI, financial constraint and partial ownership

AbstractThis study uses matched firm‐bank‐FDI data from 1989 to 2016 to explore how a firm's financial constraints affect its foreign affiliate ownership structure choice. Importantly, it tests the hypothesis that parent firms with banks as their largest shareholders hold lower ownership shares in their foreign subsidiaries, in part due to typical bank risk‐averse behaviour. The empirical analysis confirms that foreign subsidiary ownership ratios are negatively associated with parent firms' debt ratios. Moreover, this study finds evidence that greater bank ownership of the investing parent leads to lower foreign affiliate ownership shares. However, this result is not robust to two specifications: ‘crisis times’ when bank lending is greatly restricted to all borrowers, and a follow‐the‐customer relationship where the bank already has an overseas subsidiary in the host country.

Hospital ownership as a factor influencing hospital charges

Hospital ownership, whether it is government-non-federal, private-not-for-profit, or private-investor-owned, plays a pivotal role in shaping the landscape of healthcare services in the United States. The choice of ownership structure significantly influences various aspects of hospital operations, including the pricing of services. This paper aims to empirically test if hospital ownership is a crucial determinant of hospital charges in the context of other factors that contribute to hospital charges. This research uses the AHRQ (Agency for Healthcare Research and Quality) HCUP (Hospital Cot and Utilization Project) NIS (National Inpatient Sample) databases. We use regression analyses on the 12,845 heart failure cases sampled in the NIS 2019 database. Our results show that hospital ownership is a statistically significant influencer of hospital charges, length of stay, and number of diagnoses but not the number of procedures for heart failure cases. The results also reveal the statistical significance of patient demographics and hospital location, which are examined as control variables in our study whose primary focus is on hospital ownership. In-patient care in hospitals has been predominantly examined by clinical factors. Our study shows that non-clinical factors such as hospital ownership have a significant impact on hospital charges even after controlling for patient demographics.

The missing option in firm boundary decisions

Abstract Integration involves two firms, the integrating firm and the integrated firm. This paper argues that both firms matter in the integration decision. To explain how, I construct two property-rights models by introducing the two-directional integration setup in Grossman and Hart (1986) into Antras (2003) and Antras and Helpman (2004). One model features homogeneous firms; the other model features heterogeneous firms. In these models, a buyer firm and a seller firm choose one of three ownership structures: buyer integration of the seller, seller integration of the buyer, and outsourcing. Both firms’ idiosyncratic characteristics influence the choice of ownership structure. Predictions of the models are examined in a novel dataset of 209,062 buyer-seller relationships in 154 countries/territories. Both models receive strong and robust support. By allowing either firm to become the owner in an integrated relationship, this paper explains the coexistence of backward and forward integration, which occurs in 758 of the 2282 industry pairs that contain integrated relationships and is assumed away by the existing literature.

Taking a long view: Investor trading horizon and earnings management strategy

AbstractThis paper studies how the investment horizon of institutional investors affects firms' earnings management strategy in terms of trade‐off decisions between accrual management and operational adjustment. We find that when overall earnings management motives are held fixed, firms in which long‐term investors hold large stakes are more likely to manage earnings by adjusting operational decisions than by manipulating accruals. The preference for real earnings management is more pronounced when long‐term investors face performance pressures and when they have a strong influence on managers. We further document that real earnings management helps smooth earnings, and the future adverse consequences of operational adjustment are relatively less severe for firms with a greater proportion of long‐term investors than for those with more short‐term investors. Our findings are robust to the endogenous choice of ownership structure. Overall, the evidence suggests that firms choose earnings management methods to meet the earnings expectations of institutional investors, who have different earnings target windows.

Travel Distance and Corporate Investment Policy

We investigate how geographic distance relates to corporate investment decisions (i.e., investment location and ownership structure choices), using a setting of Taiwanese firms’ investment in mainland China. We measure geographic distance as travel time between parent firms (in Taiwan) and subsidiaries (in mainland China). Our identification strategy relates to the deregulation of flight routes between Taiwan and mainland China, which allows direct flights to each Chinese province. This deregulation results in variations in geographic distance across time and enables a difference-in-difference research design. Our analyses show that greater geographic distance is associated with a lower investment likelihood and a lower likelihood of 100% ownership (i.e., entire ownership) versus less than 100% ownership (i.e., shared ownership). We also find a negative association between geographic distance and investment performance. Geographic distance appears to limit firms’ access to information and thus influences their selection of investment locations and their control choice (i.e., ownership structure) to mitigate post-investment control problems.

An Analysis of Dual Class Equity System - Taking Vanke as an Example

The acquisition of Vanke Company by Baoneng group has aroused discussions between the theoretical circle and the real world on the dual class equity system. The development of multi-level ownership structure is a challenge and an opportunity for China's capital market. To research the dual class equity system in the angle of top-level design, we ought to make a change in giving the high-tech, high hit, and blue chip companies the choice of ownership structure in order to adapt the fierce competition environment. the dual class equity system reform level include the strict standards, regulate the entry criteria; strict rules of information disclosure mechanism, guarantee transparency of information and fair environment; defining the subject of management, improve the protection of small investors interest mechanism. We should make a useful exploration of the dual ownership system and continuously promote the reform of the shareholding structure in China.

From public to mixed ownership in local public services provision: an empirical analysis

ABSTRACTThere is a long tradition of companies that provide local public services, such as energy distribution or solid waste collection, being strategically important for the promotion of the development of areas where they are present and having a great influence on citizens’ quality of life. This article examines the determinants of the choice of ownership structure for Italian companies that provide local public services, and the effects that this choice has on their performance. Economic and financial data at company level was merged with economic, political, financial and territorial data on the municipality with the majority of shares in it. A two-stage multinomial selection model was employed, in order to carry out the analysis with more than two alternative ownership structures and to control for endogeneity. The empirical evidence indicates that the municipality’s political and budgetary conditions matter in the choice of ownership structure. Although the computed Average Treatment Effects seem to indicate that mixed ownership increases operating efficiency, the profitability indicators provide evidence to the contrary.

A Price Theory of Vertical and Lateral Integration*

Abstract This article presents a perfectly competitive model of firm boundary decisions and study their interplay with product demand, technology, and welfare. Integration is privately costly but is effective at coordinating production decisions; nonintegration is less costly but coordinates relatively poorly. Output price influences the choice of ownership structure: integration increases with the price level. At the same time, ownership affects output, because integration is more productive than nonintegration. For a generic set of demand functions, equilibrium delivers heterogeneity of ownership and performance among ex ante identical enterprises. The price mechanism transmutes demand shifts into industry-wide reorganizations and generates external effects from technological shocks: productivity changes in some firms may induce ownership changes in others. If the enterprise managers have full title to its revenues, market equilibrium ownership structures are second-best efficient. When managers have less than full revenue claims, equilibrium can be inefficient, with too little integration.

Financial Architecture and Corporate Performance: Evidence from Russia

Authors: Kokoreva Maria Sergeevna - assistant professor, lecturer, HSE Higher School of Economics, deputy head of the school of finance, researcher of the scientific and educational laboratory of corporate finance, director of the joint educational program for the preparation of bachelors in the direction of "Economics" USU and HSE. E-mail: maria_kokoreva@mail.ru.
 Anastasia N. Stepanova National Research University The Higher School of Economics, anstepanova@hse.ru
 In this paper we study the performance effects of capital structure, ownership structure choices and corporate governance mechanisms of Russian companies. To address the lack of research in corporate performance modeling in emerging markets we contribute to the literature by introducing cluster analysis of financial architecture and market performance of Russian companies. Our idea is to find out the efficient and inefficient types of financial architecture in emerging markets. On the sample of 50+ largest Russian nonfinancial companies within the period of 2005-2010 years we demonstrate the existence of three sustainable types of financial architecture in Russia. Using cluster analysis we form the cluster of companies in pre-crisis period and then demonstrate the relationship between the financial architecture type and the level of corporate market performance.

Bank's risk-taking and ownership structure – evidence for economics in transition stage

Conventional studies assume that inside management plays a major role in corporate governance and argue that foreign institutional investors may lack incentives to monitor invested firms due to their short-term profit orientation. By utilizing 650 observations of Taiwan banks, this study examines the effects of specific types of ownership on the risk-taking behaviours of banks under differential ownership structures. In light of the increasing foreign institution ownership during privatization, this article further constructs relative governance strength variables to observe how inside management and foreign institutions interact to affect these banks’ risk-taking. The results show that banks with higher inside management ownership and higher government ownership have higher overdue loan and lower capital adequacy ratios. Banks with higher foreign institution ownership and stronger relative governance strength are associated with lower overdue loans and higher regulatory capital. In general, the results are consistent regardless of the choice of ownership structure or relative governance strength of foreign institutions as independent variable. These findings contribute to add evidence for risk-taking behaviour manifested by banks in the emerging market, where feasible monitoring mechanisms still need to be explored.

The Choice of Ownership Structure: Evidence from Russian Mass Privatization

In a comprehensive data set of 530 Russian manufacturing firms we observe high and gradually decreasing ownership stakes of firm insiders, i.e. managers and workers. We estimate the determinants of the decision to privatize a firm in the mass privatization program (1992-94) and of the resulting initial ownership distribution. For estimating the latter we use a tobit model with sample selection. The paper presents empirical tests for predictions of the model of ownership choice in insider privatization by Aghion and Blanchard (1998). In particular, we find that collusion among workers is important in their decision to sell shares to outsiders and raises their stake. Also, firms in financial distress show a higher incidence of insiders selecting the option of privatization leading to high insider ownership. This can be explained by the desire of insiders to insure against unemployment by acquiring more shares in those companies. No evidence is found of a sequencing in privatization according to the performance of firms before privatization.

The choice of ownership structure: Evidence from Russian mass privatization

We use a large data set of Russian manufacturing firms to describe the ownership structure in the Russian industry at the end of the mass privatization program in 1994 and its subsequent evolution. The data shows a high, but gradually decreasing ownership stakes of firm insiders (managers and workers). We estimate the effect of a wide range of firm characteristics on the decision to privatize, the initial ownership structure after privatization, and on subsequent changes of ownership stakes. We test and find support for several predictions of the model by Aghion and Blanchard (1998). For example, collusion among workers makes them more reluctant to sell shares to outsiders. Firms in financial distress show a higher incidence of insiders selecting the option of privatization leading to high insider ownership. This can be explained by their desire to insure against unemployment in the case of restructuring by outsiders. No evidence is found of a sequencing in privatization according to the performance of firms before privatization. A methodological novelty of this paper is the application of a tobit model with sample selection to the choice of ownership stakes.

International Patterns of Ownership Structure Choices of Start-ups: Does the Quality of Law Matter?

The concentration of ownership of enterprises varies significantly among countries. In this paper we investigate the role that differences in legal systems play in molding founders' ownership preferences with respect to the ownership structure of their startups. We develop an economic framework which articulates the impact that the quality of protection offered to minority shareholders and debt holders has on the supply of debt and equity financing and the incentives of the founders to recruit partners or opt for sole ownership. The theoretical analysis predicts that positive relationships are likely to exist between the quality of the legal system and ownership concentration of startups. This prediction is in contrast to the findings of relationships in large publicly traded firms. Using data obtained from the Adult Population Survey of the Global Entrepreneurship Monitor project from 2001 to 2004 about ownership preference patterns, we confirm the prediction.

International patterns of ownership structure choices of start-ups: does the quality of law matter?

International patterns of ownership structure choices of start-ups: does the quality of law matter?

Firm Heterogeneity and Choice of Ownership Structure: An Empirical Analysis of German FDI in India

We contribute to the literature on the heterogeneity of multinational enterprises (MNEs) and the relevance of firm characteristics for analyzing the determinants of outward foreign direct investment (FDI). The focus is on the role of firm-level heterogeneity when MNEs decide on the share of ownership in foreign affiliates. We combine two firm-specific datasets on German MNEs with varying equity stakes in Indian affiliates. The impact of firm characteristics on ownership shares is assessed in the context of OLS and fractional logit models, controlling for industry and location characteristics. We show that the effect of several characteristics differs between the establishment of new affiliates by German MNEs and their engagement in already existing Indian firms. Most notably, the productivity of the German parents matters only for ownership shares in new affiliates.

Firm Heterogeneity and Choice of Ownership Structure

We contribute to the nascent literature on the heterogeneity of multinational enterprises (MNEs) and the relevance of firm characteristics for analyzing the determinants of outward foreign direct investment (FDI). The focus is on the role of firm-level heterogeneity when MNEs decide on the share of ownership in foreign affiliates. We combine two firm-specific datasets on German MNEs with varying equity stakes in Indian affiliates. The impact of firm characteristics on ownership shares is assessed in the context of OLS and fractional logit models, controlling for industry and location characteristics. We show that the effect of several characteristics differs between the establishment of new affiliates by German MNEs and their engagement in already existing Indian firms. Most notably, the productivity of the German parents matters only for ownership shares in new affiliates.

Host Country’s Intellectual Property Rights and Firm’s Equity Participation

There has been an important debate on whether the degree of intellectual property rights (IPR) protection in a host country affects the choice of ownership structure of a transnational firm (TNF) for its affiliate. It is argued that a TNF’s equity participation in its affiliate is used to exert control and to protect its assets. Firms with greater equity ownership can control better the extent of the technology spillover, and thus compensate for weaker IPR protection in the host country, than can firms that do not have as large an equity participation in their affiliates. Using a unique data set of a newly developed country’s (South Korea) TNFs, this paper shows that there is a negative relationship between a host country’s standards of IPR protection and a TNF’s equity participation.

Firm's choice of ownership structure: An empirical test with Korean multinationals

This paper examines the choices of ownership structure of multinational firms (MNFs) based in a newly developed country (South Korea) for their foreign affiliates. A transaction cost economics perspective is employed, taking advantage of a distinct and comprehensive firm-level data set. This is investigated as a whole-set sample of all overseas affiliates and as a sample of only partially owned affiliates using a number of analytical techniques. The paper shows that the choice of equity ownership structure is affected by the characteristics of various host countries. We find that the MNF prefers sharing control rights with a local partner when its affiliate is in a resources-based sector, when it enters a country with a large black market, or when there is large socio-cultural difference between the home and the host country.

Two-stage choice process of FDI: Ownership structure and diversification mode

Prior literature on foreign direct investment examines single-stage decision making processes based on, either the ownership structure (full vs. partial ownership), the diversification mode (Greenfield vs. acquisition), or the simultaneity of both of them (with four independent alternatives as a result of combining the ownership structure and diversification mode decisions simultaneously). This study proposes that ownership structure and diversification mode are nested and non independent decisions. However, the sequential order of the two decisions, ownership structure and diversification mode, is unknown. Thus, the current study tests the single-stage process used by previous researchers versus the two different hierarchical two-stage processes (ownership structure choice precedes diversification mode choice; and diversification mode choice precedes ownership structure choice). The empirical findings support the existence of a two-stage choice process where ownership structure choice precedes diversification mode choice. The main implication of these findings is that, given the human limited analytical capability, a hierarchical choice process can be useful to handle the information overload and the complexity inherent to the foreign direct investment choices.

Choice of Ownership Structure and Firm Performance: Evidence from Estonia

This article uses panel data for a representative sample of Estonian enterprises to analyse diverse issues related to the determinants of ownership structures and ownership changes after privatisation. A key focus is to determine whether ownership changes are related to economic efficiency. While employee-owned firms are found to be much more prone than other firms to switch ownership categories, often ‘employee-owned’ firms remain ‘insider-owned’ as ownership passes from current employees to managers and former employees. Logit analysis of the determinants of ownership structures and ownership changes provides mixed support for several hypotheses. As predicted: (i) wealth and resource constraints play a crucial role in the determination of ownership, with foreigners buying firms with the highest equity levels and insiders buying firms with the lowest equity valuations; (ii) risk aversion explains subsequent ownership changes, especially away from employee ownership; (iii) allocation of ownership depends on the pre-privatisation origin and location of the firm, and these factors also influence subsequent ownership changes. Our findings provide mixed support for the hypothesis that ownership changes are related to economic efficiency.