Endogenous Ownership Structure

Abstract

JEL classification: G32, G34, P31 Keywords: Ownership structure, Corporate Control, Foreign Investors, Privatisation Abstract Using a data set for 162 largest Hungarian firms during the period of 1994-1999 this paper explores the determinants of equity shares held by both foreign investors and by Hungarian corporations. We find evidence of a post-privatisation evolution towards more homogeneus equity structures, where dominant categories of owners aim at achieving controlling stakes. Here, the foreign investors and Hungarian corporations play the major role. In addition, focusing on firm level characteristics we find that the exporting firms attract foreign owners, who acquire controlling equity stakes. Similarly, the firm size measurements are positively associated with the presence of foreign investors. However, they are negatively associated with 100% foreign ownership, possibly because the marginal costs of acquiring additional equity are growing with the size of the assets. We interpret the results in light of the existing theory. In particular, following Demsetz and Lehn (1985) and Demsetz and Villalonga (2001) we argue that equity should not be treated as an exogenous variable. As for specific determinants of equity levels, we focus on informational asymmetries and (unobserved) ownership specific characteristics of foreign investors and Hungarian investors.

Ownership Control of Foreign Affiliates: A Property Rights Theory Perspective

“…Using this detailed information we estimate a multinomial logit model, where we categorise the discrete indicator of a change in foreign ownership control, as follows: (i) switches from majority to minority ownership (ii) switches from minority to majority ownership or (iii) no change between minority and majority. While interpreting majority ownership as ownership control is a simplification, it is a reasonable one for most cases (see Bishop et al, 2002; for further discussion). As an empirical extension and robustness check we also create an alternative categorisation by using the annual change in foreign ownership percentage to distinguish between an increase, a decrease and no change.…”

Ownership Control of Foreign Affiliates: A Property Rights Theory Perspective

“…This indicates, as one would expect, that the majority/minority distinction is critical from a theoretical as well as an empirical perspective. Although ownership is reported as a continuum, there is great significance attached to certain percentages, particularly around the majority ownership threshold (Bishop, Filatotchev, & Mickiewicz, 2002).…”

The endogeneity problem and fdi in transition: evidence from the privatized glass sector in the Czech Republic

“…Tóth and Zemèík (2006) explore the motives of foreigners behind their investment in the Czech Republic, using a sample of firms from 1997 to 2002, and find that foreign investors prefer firms with a greater ownership concentration in industries with higher level of risk, in countries with lower labour costs and corporate income taxes; among specific firms' characteristics, they find that increases in the variability of the industry's profit, ownership concentration, size and industry share imply an increment in foreign ownership. Bishop, Filatotchev and Mickiewicz (2002) analysing 162 large Hungarian firms during the period of 1994-1999 explore the determinants of equity shares held by foreign investors and by Hungarian corporations. They find evidence of a post-privatization evolution towards more homogeneous equity structures, supporting the theory from Demsetz (1983), Demsetz and Lehn (1985) and Demsetz and Villalonga (2001).…”

“…Performance has been measured in the empirical studies in different ways and most of the studies conclude that foreign investors prefer to invest in profitable firms (Anderson et al, 2001;Dahlquist and Robertsson, 2001;Bishop, Filatotchev and Mickiewicz, 2002) or firms with higher productivity or factor productivity (Raff and Ryan, 2006;Arnold and Javorcik, 2005).…”

“…Foreign investors prefer to invest in larger firms, with higher total assets (Anderson et al, 2001;Tóth and Zemèík, 2006;Bishop, Filatotchev and Mickiewicz, 2002) and with higher market capitalization (Dahlquist and Robertsson, 2001). Anderson et al (2001) find a positive but not significant coefficient when the firm's size is measured as the number of employees.…”