Equity Ownership Concentration Research Articles

Equity ownership concentration and firm growth: the moderating role of industry growth

PurposeThe effects of ownership concentration on firm performance usually considers two conflicting perspectives: monitoring and expropriation hypotheses. Past studies have produced mix findings. This study aims to shed light on this relationship by focusing on a specific measure of firm performance, firm growth. The moderating effect of industry growth in the aforementioned relationship is also considered, which advances knowledge on the role of moderators.Design/methodology/approachThis study resorts to data from a sample of 21,476 Portuguese firms, which is examined using hierarchical linear modelling. This approach is adequate because the data has a hierarchical structure: the firms are nested within industries.FindingsThe results show that equity ownership concentration has a positive effect on firms’ growth and that industry growth amplifies this relationship. Ownership concentration can spur effective monitoring, thereby alleviating principal–agent conflicts of interest and speeding up decision-making, enabling timely competitive actions that promote growth.Research limitations/implicationsThe research conceives ownership structure in two groups. However, equity ownership concentration often acquires more complex shapes. In addition, the data used is from a single country.Practical implicationsThe results show that firms pursuing growing strategies and operating in growing industries benefit from equity concentration.Originality/valueDifferent from past studies, this study focuses on firm growth performance and considers the moderating effect of industry growth.

Motivations And Effects of NEEQ's Transfer To SSE STAR Market In The Context Of Registration Reform: A Case Study Of TZTEK

NEEQ, officially known as the National Equities Exchange and Quotations, is the third national equity trading venue after Shanghai Stock Exchange and Shenzhen Stock Exchange. The National Equities Exchange and Quotations Corporation Limited (NEEQ Co. Ltd.) was registered with the State Administration for Industry & Commerce (SAIC) on September 20, 2012 with registered capital of RMB 3 billion, and was inaugurated on January 16, 2013 and gradually opening up to all regions nationwide. For small and medium-sized enterprises (SMEs), NEEQ offers a vital financing channel and enhances their liquidity. As a result, the number of enterprises listing on the NEEQ market has surged. However, this growth has brought about certain issues that cannot be ignored and have become increasingly serious. These issues include a high concentration of equity ownership and a decline in market liquidity. Consequently, the trading volume and turnover rate of NEEQ-listed companies have been decreasing year by year. This decline has significantly constrained the growth potential of some promising enterprises, such as TZTEK. These companies, which typically have good growth prospects, are often compelled to consider transferring to a different board in pursuit of sustainable development. This paper will first introduce the research significance and background of this chosen topic. Secondly, it will provide an overview of TZTEK's background of board transfer and transfer process. Then, it will analyze the motivation behind TZTEK's board transfer from the perspectives of financing, shareholder structure, and company valuation. The study will also involve an analysis of market effects, growth capability, and debt repayment capacity for TZTEK, both before and after the board transfer, using a series of relevant data. Finally, the paper will conclude with a summary of the research findings.

Equity ownership concentration’s impact on corporate internal control: the moderating effects of female directors and board compensation

By promoting diversity in equity ownership concentration, strengthening female representation on boards, aligning pay with sustainability goals, and implementing strong internal control processes, companies can integrate sustainable practices into their operations, improve their sustainability performance, and attain long-term environmental and societal health. Therefore, this study examined the relationship between ownership concentration and internal control through the sustainability lens, specifically focusing on the moderating effects of female directors and board compensation. Data from a sample of 1609 A-share listed businesses in Shanghai and Shenzhen between 2012 and 2021 were analyzed. The findings from the fixed effects model revealed the following: ownership concentration negatively affects internal control; the number of female directors positively influences internal control; female directors actively moderate the relationship between ownership concentration and internal control; and board compensation enhances the effectiveness of internal control. These insights provide valuable data for businesses to enhance their internal control systems, appoint key personnel, and advance their sustainability goals. This study suggests that linking board characteristics to corporate internal control can lead to strengthened sustainable objectives. It also incentivizes directors to prioritize and integrate sustainability concerns in their decision-making. Furthermore, by ensuring that compensation reflects sustainability performance, firms can cultivate a sustainability-based culture and drive effective internal controls that support sustainable practices, ultimately contributing to long-term environmental and social well-being.

Kinerja Perusahaan dan Corporate Social Responsibility: Peran Moderasi dari Perusahaan Keluarga

Purpose - Corporate Social Responsibility (CSR) can be defined as a commitment and form of action taken by a company regarding social responsibility and the surrounding environment with the aim of improving the welfare of people's lives and strengthening relationships between stakeholders. The purpose of this study is to examine the relationship between firm performance and CSR moderated by family firm variables and firm size, leverage, and equity ownership concentration as control variables.
 Research Method - The sample used in this research is quantitative data with a purposive sampling technique. Based on the criteria, the number of samples collected is 240 samples from 48 companies in the period 2016-2020. The sample data is tested using panel data regression.
 Findings - The result of this study indicates that there is a significant negative relationship between the firm performance variable on CSR. The moderating variable, family firm, strengthens the relationship between firm performance and CSR.
 Implication - The findings of this study imply that the higher the firm performance and profits obtained from stakeholders, the company must also be more serious in paying attention to CSR issues, implement and disclose them following the demands of stakeholders instead of exploiting them more. Stakeholders must pay more attention, especially to family companies. Policymakers to evaluate existing regulations of CSR. They should encourage the implementation and disclosure of CSR in Indonesia, which will be beneficial for stakeholders and the company itself.

The Agency Problems of Institutional Investors

Financial economics and corporate governance have long focused on the agency problems between corporate managers and shareholders that result from the dispersion of ownership in large publicly traded corporations. In this paper, we focus on how the rise of institutional investors over the past several decades has transformed the corporate landscape and, in turn, the governance problems of the modern corporation. The rise of institutional investors has led to increased concentration of equity ownership, with most public corporations now having a substantial proportion of their shares held by a small number of institutional investors. At the same time, these institutions are controlled by investment managers, which have their own agency problems vis-à-vis their own beneficial investors. We develop an analytical framework for understanding the agency problems of institutional investors, and apply it to examine the agency problems and behavior of several key types of investment managers, including those that manage mutual funds—both index funds and actively managed funds—and activist hedge funds. We show that index funds have especially poor incentives to engage in stewardship activities that could improve governance and increase value. Activist hedge funds have substantially better incentives than managers of index funds or active mutual funds. While their activities may partially compensate, we show that they do not provide a complete solution for the agency problems of other institutional investors.

The relationship between equity ownership concentration and earnings quality: evidence from Brazil

This study investigates the influence of ownership concentration on earnings quality of Brazilian firms. This topic is relevant considering the substantially low number of companies with diffuse ownership structure in Brazil in comparison to US, where most studies about earnings quality have been performed. The Brazilian setting permits us to complement Givoly, Hayn, and Katz (2010) analysis between the potential explanations for the relation between ownership structure and earnings quality based on both the “demand” and “opportunistic behavior” hypothesis. To examine this relationship, we employ two measures as proxies of earnings quality: earnings persistence and asymmetric timeliness (conservatism). Our results are consistent with the “demand” hypothesis and indicate that earnings represent a more consistent indicator of future performance when ownership structure becomes more dispersed. Our results contribute to the literature because it suggests that the quality of accounting numbers have to be assessed considering aspects related to ownership concentration (even when analyzing earnings from public firms). It also contributes to the investment community because it shows that earnings forecast accuracy may be influenced by ownership structure.

Investor sentiment and share returns: evidence on family firms

Purpose The purpose of this paper is to examine the effect of investor sentiment on share returns, exploring whether this effect is different for public family and non-family firms. Design/methodology/approach The author uses the European Economic Sentiment Indicator data, from Directorate General for Economic and Financial Affairs as a proxy for investor sentiment and focused on the share returns of family and non-family firms, using panel data methodology. Findings Using data from listed family and non-family firms for the period between 1999 and 2011, in accordance with behavioural finance theory, the results indicate that there is a negative relationship between sentiment and share returns. In addition, the author found no difference between family and non-family firms in what concerns the effect of sentiment on share returns. The evidence also suggests that young, large and medium growth firms are most affected by sentiment. Finally, the results suggest that the evidence concerning the relationship between sentiment and returns is sensitive to the proxy used to measure the sentiment. Research limitations/implications A limitation of this study is the small size of the sample, which is due to the small size of the Portuguese stock market, the Euronext Lisbon. Originality/value This paper offers some insights into the effect of investor sentiment on the share returns in the context of public family firms, a strand of finance that is scarcely developed. It also contributes to the analysis of a small European country, with a high concentration of equity ownership.

The Impact of Stock Transfer Restrictions on the Private Placement Discount

The literature contains four explanations for the private placement discount. I find that all four contribute to the discount: loss of option value due to transfer restrictions, equity ownership concentration, information gathering, and overvaluation and expected underperformance post‐issue. An average‐strike put option model calculates marketability discounts that are consistent with empirical private placement discounts when observed discounts are adjusted for equity ownership concentration, information, and overvaluation effects. In contrast to the positive signaling effect of traditional private placement announcements, there is a negative signaling effect for private investments in public equity when the firm commits to register the shares promptly.

What Happens During the Private Period?: Evidence from Public‐to‐Private Reverse LBOs

This study provides new evidence on the restructuring activities undertaken by public‐to‐private reverse leveraged buyouts (RLBOs) while owned by private equity firms. The authors' comprehensive sample of public‐to‐private LBOs that return to public ownership through IPOs enables them to observe changes in profitability, valuation, financial structure, operating structure, and cost structure from the time the firms go private through (and after) their emergence through (re‐) IPOs.With their exclusive focus on reverse LBOs involving public‐to‐private deals, the authors reach findings that contradict previous conclusions about RLBOs. At the time of the LBO, the target firms in reverse LBOs are more levered than their peers, pay higher dividends, and are more profitable than their peers. At the same time, however, they appear to have lower market valuations before the buyouts.During the private period, the target firms of reverse LBOs achieve significant increases in employee productivity, asset restructuring, and improved gross margins, while operating with substantially higher levels of debt financing, lower levels of cash and working capital, and greater concentration of equity ownership. After the companies return to public ownership through IPOs, such companies continue to operate with higher leverage and ownership concentration than their publicly traded peers while producing further increases in profitability, resulting in substantial increases in both enterprise and equity valuation. The authors' analysis also shows that higher debt levels from the buyout play an important role in increased enterprise values. The evidence suggests that possible undervaluation as well as expected efficiency gains from restructuring actions are the primary motives for such reverse LBOs.

The effects of ownership concentration and corporate debt on corporate divestitures in Chinese listed firms

This study examines how ownership concentration and corporate debt impact corporate divestitures in China. Corporate divestitures reduce the asset base of a company and the opportunity for expropriation by majority shareholders. In emerging economies, weak legal institutions, combined with equity ownership concentration and high corporate debt, allow majority shareholders to avoid such disciplines. Consequently, the relationship between these governance mechanisms and divestiture activity exhibits a pattern that is different from that in developed economies. Using archival data collected from 1,210 Chinese listed companies during 1999–2003, we found that ownership concentration by the largest shareholder depressed corporate divestitures both in state-controlled and in non-state-controlled firms. The negative effect of corporate debt on divestitures only existed for state-controlled firms. Our finding provides corroborating evidence for principal–principal conflicts in emerging economies. It suggests that corporate strategy in these countries can be better explained by taking into account the unique agency problems that are prevalent in these economies.

Active Investors, LBOs, and the Privatization of Bankruptcy

In this testimony to the House Ways and Means Committee on February 1, 1989 (when LBOs and other highly leveraged transactions were under fierce attack by politicians and the media), the author identified “LBO associations” such as KKR and Forstmann Little as a valuable innovation in organizational form—a new model of management and governance that was competing directly with the headquarters of large public corporations, especially conglomerates. In the author's words, LBOs “substitute incentives provided by compensation and ownership plans for the direct monitoring and often centralized decision‐making in the typical corporate bureaucracy.”In illustrating his point, the author noted that whereas the CEOs of U.S. companies during the '70s and '80s saw their personal wealth go up by only about $3 for every $1,000 increase in firm value, the average CEO in an LBO experienced a change of $64 per $1,000—and for the partners of the LBO firm, the closest equivalent to a conglomerate CEO, the change was about $200 per $1,000.Based on the performance of the first wave of LBOs to return to public ownership, such dramatic concentrations of equity ownership appear to have produced large gains in operating efficiency. (And since the author's testimony, these findings have been confirmed by subsequent studies of later periods and in other countries.) The heavy debt loads in these transactions, besides making possible the concentration of equity ownership, also perform an important control function, intensifying the search for efficiencies and discouraging reinvestment in low‐return projects. For those LBOs that have trouble servicing their debt loads, the author argues that the costs of insolvency should turn out to be significantly lower than for traditional public companies because LBOs provide strong incentives to keep the process of reorganizing troubled companies out of the bankruptcy court (a prediction that, although proving wrong in the early‘90s, has turned out to be true of the most recent wave of private equity deals).

CORRUPTION AND CORPORATE FINANCE PATTERNS: AN INTERNATIONAL PERSPECTIVE

Abstract. This study demonstrates the importance of government corruption in shaping corporate finance patterns across countries. Corruption contributes to a more prevalent and higher degree of corporate equity ownership concentration and more reliance on bank financing in raising external finance. It argues that corporate governance under corrupt governments is particularly poor. Firm management, taking advantage of political capital acquired through bribery, is especially powerful in expropriating from outside investors. Ownership concentration and reliance on bank financing are means of mitigating the corporate governance problem under a corrupt government.

Endeudamiento, dividendos y estructura de propiedad como determinantes de los problemas de agencia en la gran empresa española

In this paper we analyse the impact of the capital structure, the ownership structure and the payout policy on managers’ discretionary decisions. We have identified some manifestations of the agency costs and we have examined the effect of the mechanisms of control on the agency costs. Based on two measures of the agency costs concerning managers’ efficiency on assets performance and on the most discretionary costs, our results stress the role of the mechanisms of control. The capital structure does not seem to work as a mechanism to monitor the managers whereas the ownership structure plays a relevant role and can be divided into two issues: the equity ownership concentration and the managers’ ownership. The payout policy has a relevant influence on managers control too.

The Impact of Transfer Restrictions on Stock Prices

This paper investigates the factors responsible for the discount when unregistered shares of common stock are privately placed based on a sample of 101 private placements of letter stock. The discount depends in part on the stock's volatility, the length of the restriction period, the riskless rate, and the stock's dividend yield, which are consistent with the traditional view that Rule 144 transfer restrictions are responsible for the discount. But it also reflects the information and equity ownership concentration effects that accompany private stock placements, which are cited as the main reasons for the discount in more recent studies. Thus, both sets of factors are important. I also show that the appropriate discount is smaller for relatively low-volatility stocks than the range of marketability discounts investment bankers and stock appraisers usually assume.

CREATING PAY-FOR-PERFORMANCE IN FINANCIALLY TROUBLED COMPANIES

This article provides striking evidence that U.S.-style financial reorganization leads to significant increases in the concentration of equity ownership. In a study of 77 publicly held firms that restructured their debt privately or filed for bankruptcy during the 1980s, the authors find that these firms also systematically restructured senior managers' incentives and, in the process, created a much stronger link between managers' wealth and firm performance. The creation of pay-for-performance in financially distressed firms was a direct consequence of high turnover in the top executive suite. When companies become financially distressed, compensation practices come to more closely resemble those found in venture capital firms as well as LBOs and other highly leveraged organizations.

Takeovers Improve Firm Performance: Evidence from the Banking Industry

The hypothesis that takeovers provide managers with the incentive to maximize firm value is tested by examining the relationship between profitability and state statutes governing takeover activity among banks. The evidence indicates that firms in states with an active takeover market are more profitable. When takeover activity is restricted, increased use of other mechanisms that provide an incentive to maximize firm value, such as concentration of equity ownership and management ownership of stock, is observed. However, these alternative methods have a smaller effect on profitability and do not completely compensate for the absence of an active takeover market.

EFFECTS OF BOARD AND OWNERSHIP STRUCTURE ON CORPORATE R&D STRATEGY.

This study examined the extent to which the percentage of outside directors on a corporation’s board of directors, the concentration of equity ownership, and the roles of individual and institution...

Effects of Board and Ownership Structure on Corporate R&D Strategy

This study examined the extent to which the percentage of outside directors on a corporation’s board of directors, the concentration of equity ownership, and the roles of individual and institution...

LESSONS FROM A MIDDLE MARKET LBO: THE CASE OF O.M. SCOTT

In 1986 The O.M. Scott & Sons Company, the largest producer of lawn care products in the U.S., was sold by the ITT Corporation in a divisional leveraged buyout. The company was founded in Marysville, Ohio in 1870 by Orlando McLean Scott to sell farm crop seed. In 1900, the company began to sell weedfree lawn seed through the mail. In the 1920s, the company introduced the first home lawn fertilizer, the first lawn spreader, and the first patented bluegrass seed. Today, Scott is the acknowledged leader in the “do‐it‐yourself” lawn care market, with sales of over $300 million and over 1500 employees.Scott remained closely held until 1971, when it was purchased by ITT. The company then became a part of the consumer products division of the huge conglomerate, and operated as a wholly‐owned subsidiary for 14 years. In 1984, prompted by a decline in financial performance and rumors of takeover and liquidation, ITT began a series of divestitures. Over the next two years, total divestitures exceeded $2 billion and, after years of substandard performance, ITT's stock price significantly outperformed the market.On November 26, 1986, in the midst of this divestiture activity, ITT announced that the managers of Scott, along with Clayton & Dubilier (C & D), a private firm specializing in leveraged buyouts, had agreed to purchase the stock of Scott and another ITT subsidiary, the W. Atlee Burpee Company. The deal closed on December 30.Clayton & Dubilier raised roughly $211 million to finance the purchase of the two companies. Of that $211 million, almost $191 milion, or 91% of the total, was debt: bank loans, subordinated notes, and subordinated debentures. The $20 million of new equity was distributed as follows: roughly 62% of the shares were held by a C & D partnership, 21% by Scott's new subordinated debtholders, and 17.5% by Scott management and employees.After this radical change in financial structure and concentration of equity ownership, Scott's operating performance improved dramatically. Between the end of December 1986 and the end of September 1988, sales were up 25% and earnings before interest and taxes (EBIT) increased by 56%. As shown in Table 1, this increase in operating earnings was not achieved by cutting back on marketing and distribution or R & D. In fact, spending on marketing and distribution increased by 21% and R & D spending went up by 7%. Capital spending also increased by 23%.

Equity ownership concentration and firm value: Evidence from private equity financings

In contrast to the negative average abnormal returns accompanying the announcement of a public offering of securities, the announcement of a private sale of equity is accompanied by a 4.5% average abnormal return. Cross-sectional analysis indicates that the change in firm value at the announcement of a private sale is strongly correlated with the resulting change in ownership concentration. This relation depends on the level ownership concentration after the sale and the purchaser's current or anticipated future relationship with the firm.