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

Abstract

Purpose The 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/approach This 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. Findings The 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/implications The 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 implications The results show that firms pursuing growing strategies and operating in growing industries benefit from equity concentration. Originality/value Different from past studies, this study focuses on firm growth performance and considers the moderating effect of industry growth.