Foundation Ownership and Shareholder Value: An Event Study

Abstract

Some of the largest listed firms in Western and Northern Europe are partly owned by foundations. So far, little research exists about the shareholder value effects of foundation ownership. This study aims to close this gap using an event study method. We find that equity markets show a positive reaction following the announcement by a foundation that it intends to decrease its ownership share, whereas we find no reaction when a foundation announces that it intends to increase its ownership share. The positive reaction to an announcement of an ownership share decrease is particularly strong when a foundation holds an equity stake of less than 25%. Further investigations show that our findings are specific for foundations as blockholders and do not occur with other blockholders. Overall, our study shows that equity markets are skeptical about foundations as shareholders. Future research is needed to determine whether this skepticism is due to monitoring problems of foundations, goal divergences between foundations and firms, foundations being hybrid organizations with multiple goals, or legal restrictions that come with this particular form of firm ownership.

Foundation ownership and firm growth

“…Our study contributes to the literature on how firm ownership affects firm behavior (e.g., Claessens et al 2002;Wellalage and Locke 2015) and firm growth (e.g., Miroshnychenko et al 2020;Navaretti et al 2014). Moreover, we contribute to the small but growing literature on FoFs (e.g., Achleitner et al 2018;Block et al 2020;Børsting and Thomsen 2017;Draheim and Franke 2018).…”

“…Adopting a market performance perspective, Achleitner et al (2018) find that the share price of FoFs increases following the announcement by a foundation to decrease its ownership share, as opposed to no reaction after the announcement to increase its ownership share. They argue that equity markets are skeptical about foundations as shareholders.…”

“…FoFs can be defined as firms that are fully or partly owned by a foundation (Achleitner et al 2018). A foundation is a legal entity without owners or shareholders (Thomsen and Rose 2004).…”

“…A foundation is a legal entity without owners or shareholders (Thomsen and Rose 2004). It is often created by the founder of a firm or a founding family transferring their assets into a foundation (Achleitner et al 2018). The assets of the foundation may be real estates, funds, or the shares of a firm (as in our study) (Hansmann and Thomsen 2021;Thomsen and Kavadis 2022).…”

Reaction of Stock Price to Frauds’ Announcements: Evidence from Indian Banking Sector

“…Event study is also used by Wronska et al (2018) to measure market reaction to share repurchase announcement and the factor that determines the pattern of the market reaction in Poland; Chakrabarti et al (2017) to investigate the effect on stock returns after stock split in Indian context; Achleitner et al (2018) to find out effect of foundation ownership on shareholder value; Yildiz el al. (2017) to measure the market reaction to stock grouping announcements; Tan et al (2017) to explore the influence on corporate governance news on stock performance; Basgoze et al (2016) to examine the effects of brand value announcements on stock returns of Turkish firms and Tuli and Shukla (2015) to analyse the effect of Qualified Institutional Placement Announcements on Indian Capital Market in India.…”