Firm performance when ownership is very concentrated: Evidence from a semiparametric panel

Abstract

We consider the effect on performance of very large controlling shareholders, who are mostly organized in voting blocks and business groups, in a sample of Belgian listed firms from 1991 to 2006. Since the shape of the relation between ownership and firm value is a controversial issue in corporate finance, we use semiparametric local-linear kernel-based panel models. These models allow us not to impose a priori functional restrictions on the relation between ownership and performance. Our semiparametric analysis shows that the effect on performance varies depending on the size of ownership stakes and that there are departures from linearity, especially in family firms. Our results suggest that this non-linearity in family firms is related to whether or not the CEO is a family member.

Keeping it real or keeping it simple? Ownership concentration measures compared

“…The results of the mixed effects model are also qualitatively similar to those obtained by the Hausman Taylor estimator. In additional analyses (untabulated), we examine for any potential non-linear relationship between ownership concentration and firm performance (seeBarnhart & Rosenstein, 1998;Barnhart, Marr, & Rosenstein, 1994;Hamadi & Heinen, 2015;McConnell & Servaes, 1990;Morck et al, 1988). Using pricewise linear regression models the results from our data do not suggest non-linear relationship between ownership measures and firm performance.…”

Does Corporate Governance Compliance Increase Company Value? Evidence from the Best Practice of the Board

“…Agency conflicts are inherent in organizations and remain naturally linked to more complex ownership structures characterized by the presence of shareholders who differ in terms of their type (industry, family, and financial), as well as the size and the time horizon of their investment (Hamadi and Heinen 2015). In reaction to these conflicts, corporate governance offers a set of mechanisms and institutions for reducing potential problems by aligning the interests of managers with the interests of shareholders and by aligning interests of majority and minority shareholders.…”

“…In countries characterized by concentrated ownership and wedge between control and cash-flow rights, the conflicts between majority and minority shareholders become the prime concern of corporate governance (La Porta et al 1999;Bennedsen and Nielsen 2010;Hamadi and Heinen 2015;Huu Nguyen et al 2020). While the flexibility of the codes and the universalism of best practice enable the adoption of code guidelines for a concentrated ownership environment, in compliance terms, it remains the decision of powerful blockholders as to whether they constrain themselves in exerting their power over the company and their willingness to share "control of control" (Perezts and Picard 2015).…”

Effective innovation strategies for incumbent firms

“…We controlled for firm size as it has been found to influence firm performance (Hannan & Freeman, 1989;Kolluru & Mukhopadhaya, 2017). Firm size is measured by the natural logarithm of total assets in 2006 (Franck et al, 2010;Hamadi & Heinen, 2015).…”

“…We also applied current assets as control variable to account for the differences in the nature of assets among firms (Deloof, Lagaert, & Verschueren, 2007). This measure is calculated as the ratio of current assets to total assets in 2006 (Hamadi & Heinen, 2015).…”