Ownership Stake Research Articles

Investing for Impact

We study joint financing between profit-motivated and socially motivated (impact) investors and derive conditions under which impact investments improve social outcomes. When project owners cannot commit to social objectives, impact investors hold financial claims to counterbalance owners’ tendencies to overemphasize profits. Impact investors’ ownership stakes are higher when the value of social output is higher, and pure nonprofit status may be optimal for the highest valued social projects. We provide guidance about the design of contingent social contracts, such as social impact bonds and social impact guarantees.Received May 23, 2016; editorial decision April 28, 2018 by Editor Francesca Cornelli. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Strategic voting and insider ownership

Manager incentives are viewed as being better aligned with those of shareholders when they have an ownership stake in the firms they manage. However, manager ownership can exacerbate agency problems by better enabling managers to pass shareholder resolutions. We outline a model of strategic shareholder voting that allows outside shareholders to mitigate the influence of insiders. Consistent with our model, we find empirical support for strategic voting by outside shareholders and that strategic voting is more apparent when management-sponsored proposals are controversial or complex, when votes are close, or when other agency risks are greater.

Mutual Fund Manager Educational Background and Activeness

Some active mutual funds are more active than others. Indeed, research has found that many so-called active funds are not nearly as active as they appear as they hold a portfolio that can be quite similar to their benchmark index. Furthermore it has generally been found that funds who are consistently active (hold a portfolio that is quite different from the benchmark) but take positions that are sufficiently well diversified across industries (do not have high tracking error), have better risk-adjusted performance. Given the importance of an active fund being truly active, in this paper we try to predict a fund’s activeness by examining mutual fund manager educational characteristics. After controlling for many factors including the firm at which the fund is located, we find that funds with managers who attend higher mean SAT undergraduate schools are significantly more active than other managers. We also find evidence that funds with younger managers and funds with managers who have a large ownership stake in the fund also are significantly more active.

The Effect of Hospital Ownership on Health Care Utilization in Orthopedic Surgery

To determine if ownership of a specialty hospital or ambulatory surgery centers (ASC) affects surgical volume. All surgeries performed by 75 orthopedic surgeons at a single practice between January 1, 2010 and March 1, 2015 were identified. During this time, the practice purchased an ownership stake in 1 hospital and 3 ASC. The total surgical volume by partnership status and location was collected and analyzed. A total of 104,661 surgical surgeries were performed by 75 surgeons. Over the 62 months, there was an average increase in the number of surgical cases performed per surgeon per year of 2.82±0.48 cases; however, the average increase in cases per year was lower for equity partners by 1.51 cases per year (P<0.0001). In the 2 years before purchasing the specialty hospital, the increase in the number of surgical cases per surgeon per month was 0.093±0.087 cases. In the 2 years after investing in the physician-owned specialty hospital, there was a decrease in the number of cases performed per surgeon per month by 0.027±0.110 (P=0.92). In a well-established large orthopedic practice, surgeon ownership of a hospital or ASC does not lead to an increase in surgical volume. Level 4.

The evolution and adoption of equity crowdfunding: entrepreneur and investor entry into a new market

Equity crowdfunding (ECF) offers entrepreneurs an online social media marketplace where they can access numerous potential investors who, in exchange for an ownership stake, may supply them with finance. In this paper, we describe the evolution of this market in the UK. Using an inductive qualitative longitudinal research design, we analyse the emerging views of entrepreneurs and investors towards ECF. Our interviewees include large and small-scale investors, as well as market participants who have chosen not to invest or raise funds via ECF. We find that the large financial flows to entrepreneurs in the UK via the ECF platforms, nearly half a billion GBP since 2011, have probably been largely incremental to traditional sources of early stage entrepreneurial finance. Moreover, our research indicates that for the most part, investors appear to understand and appropriately evaluate the risks that they are bearing; ECF investments are perceived as a high risk, high return component within individuals’ portfolios. Investors also use their communication with peers and entrepreneurs via the ECF platform as a learning tool. On the entrepreneurs’ side, ECF allows them to test their products, to develop their brand, to build a loyal customer base and to turn customers into investors. We conclude that policymakers, with the support of a locally appropriate regulatory framework, could support equity crowdfunding as one of the market choices available for entrepreneurs looking to start or grow their ventures.

Delaware's Retreat: Exploring Developing Fissures and Tectonic Shifts in Delaware Corporate Law

The 1980’s is appropriately considered the Golden Age of Delaware corporate law. Within that era, the Delaware courts won international attention by not just erecting the legal pillars that frame today’s corporate governance discourse but by interjecting a fresh perspective on the rights of owners and the prerogatives of managers. Four decisions stand out within a melodious chorus of great decisions of that era - Revlon , Inc. v. MacAndrews & Forbes Holding, Inc., Weinberger v. UOP, Inc., Unocal Corp. v. Mesa Petroleum Co., and Blasius Industries, Inc. v. Atlas Corporation. We refer collectively to the decisions as the Golden Quartet and show they each had the same life cycle: first, fundamentally changing Delaware’s judicial review of important recurring questions that both delineate the obligations of managers and defining the owner-manager relationship, only to be later eviscerated with the alacrity with which they first appeared. It is of course the nature of the common law for doctrine to be honed through subsequent decisions and such honing did initially occur in the life of each of these decisions. But it is less common for the doctrine to be abandoned or so seriously qualified as occurred with the Golden Quartet. Multiple forces in the world of corporate governance have affected directors’ and officers’ roles in the modern corporation and hence the Golden Quartet’s force. Chief among such forces are the growing prevalence of the independent director, the increased concentration of the shareholder ownership stakes, and the development of hedge fund activism, to name a few. These are easy explanations and are explanations the Delaware Supreme Court has recognized for stepping back from the earlier-established doctrines. While not disagreeing that each of these forces exists and recast the focus of the doctrine, after close analysis of the rise and fall of the Golden Quartet, we set forth some additional reasons for Delaware’s retreat from each component of the Golden Quartet.

Ownership Concentration, Investment, and Firm Value in the Shipping Industry

We measure the sensitivity of investment to changes in investment opportunities in the shipping industry and test whether this relation is moderated by ownership concentration. For a sample of 126 globally listed shipping firms, we find that investment in commercial shipping follows freight rates, a measure of the potential income stream from owning a vessel. Ownership concentration, measured as the ownership stake of the largest shareholder, reinforces the positive effect of freight rates on investment, indicating a higher relative efficiency of capital allocation. The positive impact ownership has on the investment-freight rate sensitivity also translates into higher firm value. An analysis of investor identity shows that our results are driven by the group of firms where the largest owner is a financial investor, who is usually more focused on shareholder value maximization.

Private equity investment, exit strategy and IPO performance: evidence from Indian IPOs

Private equity (PE) is one of the important sources of financing. The certification hypothesis associated with PE investment influences the performance during the process of going public. The listing day performance of initial public offerings (IPO) is significantly influenced by various financial intermediaries involved in the IPO process due to certification effect associated with their reputation. In this study we try to evaluate certification and grandstanding hypothesis associated with PE investors in IPO market. Our empirical results refute certification hypothesis since the PE investment does influence the IPO performance. However, the ownership stake of PE investment has negative impact on the first day of IPO performance. This supports grandstanding hypothesis where the ownership stake and the urge of PE investors in liquidating the stake determines the IPO performance. The insignificant ownership stake held by private equity investors is a consequence of regulatory constraint. The insignificant impact on long-term IPO performance is also due to insignificant ownership stake retained after IPO. In addition, it is also observed that business group affiliated firms have lower degree of IPO underpricing. The overall performance of IPO follows 'U' shape curve indicating positive performance in the short term and long-term.

Private equity investment, exit strategy and IPO performance: evidence from Indian IPOs

Private equity (PE) is one of the important sources of financing. The certification hypothesis associated with PE investment influences the performance during the process of going public. The listing day performance of initial public offerings (IPO) is significantly influenced by various financial intermediaries involved in the IPO process due to certification effect associated with their reputation. In this study we try to evaluate certification and grandstanding hypothesis associated with PE investors in IPO market. Our empirical results refute certification hypothesis since the PE investment does influence the IPO performance. However, the ownership stake of PE investment has negative impact on the first day of IPO performance. This supports grandstanding hypothesis where the ownership stake and the urge of PE investors in liquidating the stake determines the IPO performance. The insignificant ownership stake held by private equity investors is a consequence of regulatory constraint. The insignificant impact on long-term IPO performance is also due to insignificant ownership stake retained after IPO. In addition, it is also observed that business group affiliated firms have lower degree of IPO underpricing. The overall performance of IPO follows 'U' shape curve indicating positive performance in the short term and long-term.

Do Related Party Transactions Affect Family Firm Valuations?

We investigate whether family firms are more likely to engage in related party transactions (RPTs) and the impact of RPTs on the previously documented family firm value premium (Anderson and Reeb 2003). While RPTs are strategic in some situations and opportunistic in others (Kohlbeck and Mayhew 2010; Ryngaert and Thomas 2012), family firms are particularly prone to opportunism through RPTs because family members tend to have more power than their ownership stakes predict. We expect RPTs to reduce the family firm premium due the existence of so called type II agency costs from agency conflicts between controlling and minority shareholders and the potential opportunistic behavior represented by RPTs. Based on an extensive hand-collected sample, we find that family firms are more likely to enter into RPTs and the family firm value premium declines when family firms report RPTs. Further, all RPTs are not the same as the declining value premium is only associated with 1) RPTs with directors, officers, and major shareholders, or 2) those considered more opportunistic (tone RPTs).

Opening Up the ‘Black Box’ of Audit Firms: The Effects of Audit Partner Ownership on Audit Adjustments

Audit firms face conflicting incentives. On one hand, they are motivated to provide high quality audits in order to protect their reputations and avoid regulatory sanctions but, on the other hand, they also need to please their clients in order to increase their revenues. We argue that these conflicting incentives become apparent when comparing the partners who conduct audits (i.e., ‘engagement partners’) and the partners who are responsible for monitoring audit quality (i.e., ‘review partners’). Given their different responsibilities within the audit firm, we predict that review partners monitor audit quality more closely when they are motivated to work harder, whereas engagement partners tend to work harder by trying to please their clients. Consistent with these predictions we find that the associations between audit adjustments and partner ownership are: 1) significantly positive for review partners, 2) significantly negative or insignificant for engagement partners, and 3) significantly more positive for review partners than engagement partners. Our findings suggest that larger ownership stakes motivate review partners to monitor audit quality more closely, while larger ownership stakes do not motivate engagement partners to deliver higher quality audits.

Vertical Ownership and Export Performance: Firm‐Level Evidence from the Food Industry

This article examines whether ownership arrangements between food firms and intermediaries improve the export performance of the former. We develop a theoretical model of trade with vertically‐linked industries whereby upstream manufacturers compete in export markets and may decide to acquire ownership stakes in an intermediary. The model highlights how more productive firms succeed in managing the double marginalization problem and in reducing the costs of exporting through forward acquisition. The predictions from the model are tested using firm‐level data on the French food industry. The results demonstrate that acquiring an intermediary lowers prices and distribution costs, and reveal that the benefits from forward acquisitions can be quite large. Conversely, we find that vertical ownership creates a market externality among manufacturers due to the reallocation of market shares from small firms to large firms, thereby forcing some low‐productivity firms to exit foreign markets.

Family Ownership and the Decentralization of Decision Making

We examine decentralization -- that is, the use of more than one decision maker -- in small- to medium-sized organizations, with a particular focus on family firms. Our estimation results suggest that larger firms decentralize more often, as do firms with newer owners, organizations with a greater proportion of managers and firms in which non-directors have a significant ownership stake. On the other hand, centralization (using one key decision maker) is more likely in firms that use network communication technologies and benchmark firm performance. If a firm has a single decision maker, almost all are male with a average of 15 years managerial experience. With respect to family firms, the relationship between ownership and decision making is nuanced, although overall family-owned businesses are more likely to centralize, and this is particularly true when a family member is the director or proprietor. Furthermore, both first- and second-generation family firms have a greater tendency to be centralized than non-family businesses. These empirical findings are discussed in the light of existing economic theories of the allocation of decision-making rights and organizational structure.

Ownership Dynamics within Founder Teams: The Role of External Financing

This paper examines how founders within start-up teams dynamically re-adjust their relative ownership stakes. It leverages a unique dataset from British Columbia, Canada, which contains detailed information on founder ownership over time. Two trade-offs between efficiency and fairness are identified, one at the time of founding, the other as the venture develops. Teams with a preference for fairness at the start, as witnessed by an equal division of founder shares, also exhibit a dynamic preference for fairness, as witnessed by a reluctance to change ownership over time. Relative founder stakes are more likely to change when a company raises investments. Larger rounds, and lower valuations are associated with bigger changes in relative founder stakes.

Designing Organizations to 'Win' in Pluralistic Settings

Actions to address the grand challenges of today's society are largely characterized by pluralistic environments. Pluralistic organisation involves the mobilization of interdependent resources which are controlled by legally independent actors. These actors include governments, public agencies, businesses and nonprofit. Whereas the assembly of these resource rich actors creates an interorganizational network with capabilities beyond that of anyone single actor, the organisation becomes pluralistic as the power to make strategic choice is diffused across knowledge-based work processes and often conflicting goals. In this symposium we aim to extend the cognitive lens of organisational design to these environments. We see this phenomenon as pertinent to organisational design as relying on traditional sources of authority vested in ownership stakes, regulation, and employer-employee relations, runs somewhat antithetical to the environments which substantiate pluralistic organisation. Subsequently we have invited a number of eminent theorists and empiricists from backgrounds of both organisational design and pluralism to advance our knowledge of this nascent field. Specifically we wish to advance our knowledge on two types of “interfaces&x201D;. Firstly, the nature of interorganizational interfaces operating under pluralism. We wish to look at the organisational structures which may impede or impel the efficacy of pluralistic organisation. Secondly, we seek to advance our knowledge of the firm who must interface with pluralistic environments. A salient example of this is nonmarket strategizing, more specifically, stakeholder management. How can a firm organize as to effectively interface with environments which are inherently pluralistic characterized by diffuse power relations and heterogeneous motivations?

Activists raise stake in Clariant

Investors who are opposed to Clariant’s planned merger with Huntsman Corp. have raised their ownership stake in Clariant to more than 10% from 7.2% previously. The stake is held by White Tale Holdings, which comprises the investment funds 40 North and Corvex. The funds, in turn, are controlled by three New York City-based investors. When disclosing their 7.2% stake earlier this month, the investors complained that a merger with Huntsman would reverse Clariant’s specialty chemical strategy.

Future Governance Options for the Mars Corporation

This paper argues that ownership forms and governance arrangements will play a critical role in ensuring the future of mutual practices and outcomes for the Mars Corporation. Mutuality is one of the company’s five core principles, and members of Mars Incorporated have increasingly been exploring how mutuality can be harnessed and embedded, thereby producing positive outcomes for both the corporation and its stakeholders. This paper looks specifically at how ownership structures can contribute to the mutuality of the corporation. There are plenty of member-owned ‘mutual’ businesses that fail to develop and implement the necessary policies and practices to take full advantage of their mutuality for business purposes: it is an opportunity lost. Conversely, there are non-mutuals, in the sense of organisations that are not member-owned, but which pursue mutuality as a business principle. These companies gain some advantage from so doing, but perhaps not to the full extent that would be possible were those principles to be supported by a degree of actual mutual ownership, and with less chance of that mutuality being sustainable. Companies that do not reward their employees or customers with any actual ownership stakes may nonetheless seek to engender a ‘sense of ownership’ amongst them: this may pay dividends, but it is likely to be more effective and sustainable if underpinned by a degree of actual ownership. This paper argues firstly, that to get the most out of mutuality, and to make is sustainable, requires a degree of mutual ownership. Using ‘trust’ or ‘foundation’ structures has proved successful at delivering such outcomes in a range of companies across the leading industrialised economies. Looking forward, to the question of how Mars Incorporated may choose to structure its own ownership and governance arrangements in the future, the company is involved in a range of interesting activities globally that might usefully seek to develop forms of mutuality with their suppliers and other ‘stakeholders’ in their distributional value chain. In so doing, Mars would be promoting mutual ownership within other, new companies. This would have three beneficial effects. First, it would strengthen the sustainability of those ventures themselves. Second, it would contribute positively to the degree of corporate diversity and resilience within those economies. And third, it would contribute in imaginative and innovative ways to the growth and development of the mutual sector itself, globally and over time.

Board Independence as Panacea to Tunneling? An Empirical Study of Related Party Transactions in Hong Kong and Singapore

This article examines the effect by imposing higher board independence requirement on private benefit extraction by corporate management or controlling shareholders in Hong Kong and Singapore, which are both international financial centers transplanting the Anglo-American corporate governance model in the 21st century. We show that higher board independence does negatively correlate with fewer related party transactions (RPT), indicate that better corporate governance might have an effect of reducing tunneling through RPTs. However, we find no causal effect of Hong Kong’s imposition of minimum board independence threshold in 2012 on reducing tunneling. Our data also shows that a controlling having more ownership stakes does not necessarily mean more tunneling. Overall, this research lends support to existing literature on the role of better corporate governance in addressing agency costs, though the exact effect of a particular change of corporate governance rule on tunneling might be unclear if the rule is imposed and revised incrementally over time.

Strategic Voting and Insider Ownership

Manager incentives are viewed as being better aligned with those of shareholders when they have an ownership stake in the firms they manage. However, manager ownership can exacerbate agency problems by better enabling managers to pass shareholder resolutions. We outline a model of strategic shareholder voting that allows outside shareholders to mitigate the influence of insiders. Consistent with our model, we find empirical support for strategic voting by outside shareholders and that strategic voting is more apparent when management-sponsored proposals are controversial or complex, when votes are close, or when other agency risks are greater. Accepted by Journal of Corporate Finance in May 2018.

Ownership and Control in the Netherlands

This paper analyses ownership and control structures of Dutch listed companies. Legislation effective since 1992 mandates all shareholders with holdings of 5 percent or more in Dutch companies to disclose their holdings. Our analysis shows that the average ownership stakes of the largest and the three largest shareholders are 27% and 41%, respectively. The average ownership stakes of banks, insurance companies and other financial institutions are relatively low. We observe that voting rights are more concentrated than ownership rights the use of a supervisory board representing interests of different stakeholders is ubiquitous; and listed companies use different forms of antitakeover defence measures.