Examining the Relationship between Disproportional Ownership Mechanisms and Company Performance: An Empirical Research

Abstract

The paper explores the relation between the use of disproportional ownership mechanisms and firm performance in listed companies. Literature suggests that such tools deviate from the proportionality principle between cash-flow rights and control rights and negatively affect firm outcomes. Differently, some studies emphasize that disproportional ownership mechanisms have a positive effect on company performance as controlling shareholders can be motivated to maximize corporate outcomes, providing outperforming benefits than the potential minority expropriation risk. Moreover, it is still an open issue whether firm performance can be interpreted as determinant of disproportional ownership mechanisms. Therefore, it is an empirical question whether company performance can be considered as an implication and/or a driver of disproportional ownership devices. Moving from these premises, the article relies on a unique hand-collected dataset and examines a sample of Italian listed companies through regression analyses. Findings show that the use of disproportional ownership devices is affected by past company performance and highlight that these ownership tools worsen firm outcomes. The research has both theoretical implications for future studies and practical implications for policy makers.