Firm Ownership Concentration Research Articles

Family firms and innovation: a revisit to SEW perspective

ABSTRACT Extant literature on innovation in family firms has generated mixed results regarding the preference of family firms for innovation. By integrating literature on family ownership and management, we propose an inverted U-shaped relationship between family firm ownership concentration and innovation. Our Poisson regression-based model on a sample of 532 family firms from India for ten years shows that family ownership concentration follows an inverted U-shaped relationship with innovation. Our findings further suggest that the family CEO moderates this inverted U-shaped relationship.

How does firm ownership concentration and female directors influence tax haven foreign direct investment? Evidence from Asia-Pacific and OECD countries

ABSTRACT The literature on tax havens utilization by multinational enterprises (MNEs) has largely focused on determinants that are financial or technological in nature. We contribute to this literature by showing important corporate governance determinants for tax haven utilization by Asia-Pacific and OECD country MNEs. Theoretically, we show that ownership concentration and female board membership influence tax haven utilization. Empirically, we show negative associations between ownership concentration and female board membership and the likelihood of owning a subsidiary in a tax haven. Based on our results, we draw a number of implications for theoretical and empirical work, which also opens the door for further investigation in this area.

It’s all about culture! Institutional context and ownership concentration across Europe

It is widely recognised that the formal institutional context affects firm ownership concentration. However, the impact of the informal institutional context has received less research attention. Drawing from institutional theory, we tested our hypothesis that both the formal and informal (cultural) institutional contexts simultaneously influence firm ownership concentration. Based on a firm-level database of the largest 600 listed companies in 19 European countries for the period 2009–2015, we found that both formal and informal institutional contexts, considered independently from each other, affect the level of firm ownership concentration. However, when these institutional contexts are considered together, the significance of the formal institutional context's effect on ownership concentration disappears while the informal (cultural) institutional context remains significant. Specifically, our findings indicate that high power distance, collectivism, uncertainty avoidance, restraint, and short-term orientation favour firm ownership concentration. Overall, our findings demonstrate that the diversity in European cultures explains firms' different levels of ownership concentration across European firms, signalling that the European Union's efforts towards a common regulatory frame may not necessarily lead to a convergence of European firms' ownership structures and, consequently, of corporate governance practices.

Risk Premiums, Nominal Rigidities, and Limited Asset Market Participation

AbstractRecent developments in the asset pricing literature show that a combination of technology and distributive shocks can rationalize observed risk premia when firm ownership is concentrated in the hands of few households. We find that distributive shocks are unnecessary when nominal price rigidity is taken into account. Our results are driven by the income redistribution associated to procyclical variations in profit margins when firms ownership is concentrated, prices are sticky, and technology shocks hit the economy. In this regard, standard DSGE models that allow for firm ownership concentration have the potential to replicate both business cycle facts and the moments of financial variables.

Bayesian bandwidth estimation for local linear fitting in nonparametric regression models

Abstract This paper presents a Bayesian sampling approach to bandwidth estimation for the local linear estimator of the regression function in a nonparametric regression model. In the Bayesian sampling approach, the error density is approximated by a location-mixture density of Gaussian densities with means the individual errors and variance a constant parameter. This mixture density has the form of a kernel density estimator of errors and is referred to as the kernel-form error density (c.f. Zhang, X., M. L. King, and H. L. Shang. 2014. “A Sampling Algorithm for Bandwidth Estimation in a Nonparametric Regression Model with a Flexible Error Density.” Computational Statistics & Data Analysis 78: 218–34.). While (Zhang, X., M. L. King, and H. L. Shang. 2014. “A Sampling Algorithm for Bandwidth Estimation in a Nonparametric Regression Model with a Flexible Error Density.” Computational Statistics & Data Analysis 78: 218–34) use the local constant (also known as the Nadaraya-Watson) estimator to estimate the regression function, we extend this to the local linear estimator, which produces more accurate estimation. The proposed investigation is motivated by the lack of data-driven methods for simultaneously choosing bandwidths in the local linear estimator of the regression function and kernel-form error density. Treating bandwidths as parameters, we derive an approximate (pseudo) likelihood and a posterior. A simulation study shows that the proposed bandwidth estimation outperforms the rule-of-thumb and cross-validation methods under the criterion of integrated squared errors. The proposed bandwidth estimation method is validated through a nonparametric regression model involving firm ownership concentration, and a model involving state-price density estimation.

Corporate Financing, Corporate Wealth Concentration, and Income Inequality

We show the translation of income inequality into wealth inequality, arguably via the channel of corporate financing. For 15,812 publicly listed firms operating in 41 developed and developing countries, we find robust empirical evidence of a positive impact of national income inequality on corporate wealth concentration via firm ownership concentration. This is also a contribution, through a new explanatory factor identification, to the literature on firm ownership concentration.

Corporate governance, disclosure and firm performance: empirical findings from Malaysia

This study examines the effect of corporate governance, disclosure and firm characteristics on firm performance by taking data from the 2013 financial year annual reports of large public listed companies (based on market capitalisation) in Malaysia. Using multiple regression analysis, this study finds that the effect on firm performance, namely ROA, ROE and Tobin's Q, is different. Board size, the percentage of independent directors on the board and percentage of ownership concentration in firms have a significant negative relationship with ROA. ROE shows a significant negative association with board size, AC independence and ownership concentration. Tobin's Q only shows a significant negative relationship with board size. The findings in this study contribute to literature that good corporate governance characteristics, appropriate disclosure of corporate governance information and firm characteristics have improved the performance of listed companies in Malaysia. The study also suggests limitations and directions for future research.

Institutional ownership and simultaneity of strategic financial decisions: an empirical analysis in the case of Pakistan Stock Exchange

The traditional interpretation of corporate finance is characterized by ownership. Although, their rights are widely distributed among individual stockholders, but can be managed by few managers. Hence, conflict of interest is arisen among managers and shareholders and this results in an agency problem (Fama, 1980; Fama & Jensen, 1983). A number of empirical studies also confirmed the ownership concentration of firms, especially those dominated by few large owners or block-holders (La Porta et al., 1999). The concentrated structure of ownership also contributes towards agency conflict between block-holders and minority shareholders. From another perspective, the block-holders can benefit minority shareholders by their role in monitoring managers and also can be hazardous if they strive to achieve their own private goals (Shleifer & Vishny, 1997).

Risk Premiums, Nominal Rigidities and Limited Asset Market Participation

Recent developments in the asset pricing literature show that a combination of technology and distributive shocks can rationalize observed risk premia when firm ownership is concentrated in the hands of few households. We find that distributive shocks are unnecessary when nominal price rigidity is taken into account. Our results are driven by the income redistribution associated to procyclical variations in profit margins when firms ownership is concentrated, prices are sticky and technology shocks hit the economy. In this regard, standard DSGE models that allow for firm ownership concentration have the potential to replicate both business cycle facts and the moments of financial variables.

The Type I Versus Type II Agency Conflict on Earnings Management

Tis study aims to detect the background of earnings management behavior in which it shows the tendency of type I or II agency conflict. The high ownership concentration of firms in In-donesia leads type II agency conflict, but the good corporate governance formulation assumes conflict between management and shareholders. This study uses published data in IDX from 2009–2014. TThe result reveals that reputation quality has negative significant correlation to earnings management behaviors, but corporate governance quality has insignificant correlation to earnings management, except percentage of independent commissioner board in moder-ate level. It has implication that management faces type II agency conflict. The majority may monitor management directly, so the finding reveals that independent commissioner board’s function is not optimum as part of corporate governance mechanism. According to the evi-dence, corporate governance formulation, especially in Indonesia, should be needed for reduc-ing earnings management on type II tendency.

The influence of organizational factors on board roles

PurposeUsing a contingency approach, the purpose of this paper is to study how organizational factors (such as the organizational life cycle, firm size, firm ownership concentration and firm technology) determine the relative importance of the monitoring and provision of resources roles provided by board members.Design/methodology/approachThis paper highlights the importance of contingency factors in carrying out board’s roles using a sample of 579 European firms registered in the STOXX Europe 600 index. The authors used a longitudinal analysis for the period from 2002 through to 2011.FindingsThe results show that the monitoring role is more relevant for companies that are large, are operating at the mature and stagnant stages, have a dispersed ownership and are low-technology. However, the provision of resources role is more relevant for companies that are in the growth and stagnant stages, and have a concentrated ownership.Originality/valueThe traditional analysis that relates the board’s structure and composition to the board’s roles focuses on determining what board should be the best. It plays little attention to analyzing which organizational factors affect the importance and presence of monitoring or resource dependence roles. In this regard, this work adds significant insights to agency theory and resource dependence theory as, with a contingency framework, the research aims to find what functions the board needs to develop in order to get better firm performance.

Financial centers and ownership concentration: When is ownership concentration value relevant? Evidence from an emerging market

Does the location of a firm’s headquarter effect ownership concentration? Do stock market participants value ownership concentration differently for firms located at different geographic locations? Using data from India, this paper shows that firms headquartered in Mumbai, the main financial center of a country, have lower ownership concentration than firms headquartered elsewhere. We argue that clustering of firms in the financial center reduce information asymmetries and lower the incentives for concentrated ownership. Our results also show that as the extent of analyst following increase, the difference between ownership concentration of firms headquartered in Mumbai and firms headquartered elsewhere goes up. We argue that higher analyst coverage reduces information asymmetries quicker for firms headquartered in the financial center and results in larger difference between the two groups. In addition, we also show that ownership concentration is value relevant only for firms headquartered in the non-financial centers. We show no relationship between ownership concentration and firm performance and valuation in the financial centers. This paper provides evidence that location of a firm’s headquarter in the financial center can significantly alter its information environment. Reduced information asymmetries lower the incentives for concentrated ownership in the financial centers.

Ownership and Innovation: Evidence from Swiss Listed Firms

Both theoretical and empirical studies provide mixed predictions when looking at the impact of corporate ownership on innovation. Contributing to this discussion, this paper conducts a causality test of the relation between the ownership concentration of firms and their innovation, measured by patents and patent citations. Using a sample that contains annual data of about 150 companies over the 1990-2010 period, we address potential endogeneity concerns using the introduction of the Swiss takeover law as an instrumental variable. In line with the “hold-up” view, we find higher ownership concentration leading to more firm innovation.

Wage-setting institutions and corporate governance

We present a model in which wage-setting structures explain cross-country variation in corporate governance. The model predicts a nonmonotonic relationship between the level of centralization in wage-bargaining institutions and the levels of firm ownership concentration and investor protection legislation. Low and high degrees of centralization yield less concentrated ownership and more investor protection than intermediate degrees. Like recent research, this paper highlights labor as a key constituent in shaping corporate governance. However, our theory can resolve an important puzzle this research confronts, namely, why Scandinavian countries with higher than average labor strength also have higher than average investor protection legislation.

To scheme or bid? Choice of takeover method and impact on premium

In recent years there has been an increasing use of members’ schemes of arrangement to bring about a change in corporate control. This increasing use of schemes has been criticised in public quarters on the basis that unlike takeovers, schemes are not subject to the Eggleston principles and have arguably led to target shareholders receiving lower offer prices. This study provides the first large-sample empirical evidence on differences between schemes and takeovers. We find that the likelihood of the use of schemes significantly increases when target firm ownership concentration is higher and when the bidder has a lower toehold. Scheme usage is also more likely for larger targets and bidders with higher leverage. Consistent with public criticisms of schemes, we find that after controlling for self-selection premiums in schemes are significantly lower than those in takeovers.

A Paradoxon of Policy Intervention: The Case of the German Tax Reduction Act

This paper provides causal evidence on the effect of ownership structure on firm value and on the impact of large tax incentives on the divestiture decision of equity blockholders by exploiting a quasi-experimental policy change in Germany. The 2000 Tax Reduction Act repealed corporate shareholders from capital gains taxation, whereas individual shareholders experienced only minor tax reductions. We show that stronger tax incentives to dispose shares do not necessarily reduce ownership concentration in the presence of strategic value premia as we find an increase in ownership concentration in firms controlled by a (tax exempt) corporate investor in response to the tax repeal. As the general policy of the German government was aiming at a more active market for corporate control via a more dispersed ownership structure, this result is not in line with the intentions of the policy makers. With respect to the relation between ownership structure and firm value the results from our difference-in-differences estimation suggest that the tax repeal was effective in removing market frictions and allowing for a more efficient shareholder structure: we find a positive relationship between ownership concentration and firm value.

Determinants of ownership concentration in public firms: The importance of firm-, industry- and country-level factors

We analyze the relative importance of firm-, industry-, and country-level factors as determinants of the level of ownership concentration of firms. We apply hierarchical linear models to a sample of 900 firms from nine countries. Our models explain up to 28% of the variance in ownership concentration. The results show that firm- and country-level factors influence ownership concentration far more strongly than industry-level factors do. The institutional context in which companies operate has a relatively large effect on ownership concentration. Our results should spark further multi-level research on the relationship between environmental factors on the country level and the allocation of ownership rights.

Ownership Concentration and the Value Effect of Related Party Transactions

We investigate 218 Related Party Transactions (RPTs) in Israel, an economy characterized by a high percentage of closely held firms, and identify a non-linear inverted U connection between the value effect of RPT and the level of firm ownership concentration. This non-linear connection is similar to the worldwide documented quadratic (inverted U) relation between ownership concentration and a firm's Tobin's Q. The relation becomes even stronger statistically, when we measure ownership concentration using a strategic power approach, in an attempt to identify the source of this puzzling connection.

Determinants of Ownership Concentration: The Importance of Firm-, Industry- and Country-Level Factors

We analyze the relative importance of firm-, industry-, and country-level factors as determinants of the level of ownership concentration of firms. Building particularly on the work of Demsetz & Lehn (1985), Thomsen & Pedersen (1999; 1997, 1998), and La Porta et al.(1998, 1999), we develop hypotheses and test them on a sample of 900 firms from nine countries, using hierarchical linear models. Our models explain up to 31% of the variance in the ownership concentration of firms. The results show that the firm- and the country-level influence ownership concentration significantly, whereas industry-level factors play an almost negligible role in this respect. Specifically, we find that the institutional context in which companies operate has a surprisingly large effect on the level of ownership concentration. Our results should spark further multi-level research on the relationship between environmental factors on the country level and the allocation of ownership rights in firms.

Changes in Ownership Concentration in Mass Privatised Firms: evidence from Poland and the Czech Republic

We analyse the changes in ownership concentration in firms included in two mass privatisation programmes in Poland and the Czech Republic. We find that despite important differences in the design of the two privatisation schemes and despite different quality of regulatory environments, the ownership structure emerging 4–5 years after the initial distribution of assets is remarkably similar in the two countries. Ownership concentration defined as the share of the largest equity holder has significantly increased. Exploring the determinants of ownership concentration, we check whether such revealed preference for higher participation in firm equity does not hide different motivations and behaviour of investors. Our results reveal interesting differences between the two countries: in the Czech Republic the increase in ownership concentration was less likely in poorly performing firms, while in Poland the quality of past performance did not affect investors' willingness to increase their holdings. This contrasting result may reflect the difference in the quality of laws and regulations in Poland and in the Czech Republic. In the Czech Republic, where tunnelling was a common practice in the period covered by our study, shareholders increasing their stakes in a company could have been motivated by the objective of extracting value rather than by the willingness to impose a specific direction on the way the firm is managed. This might explain why they prefer to increase their control in those companies which perform well rather than those that perform poorly.