Ownership Concentration, Institutional Development and Firm Performance in Central and Eastern Europe

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp10096.pdf results show an inverted u-shaped relation of ownership concentration and firm performance. Non-technical SummaryWe interpret these findings as evidence for a classic agency problem emanated from weaker monitoring by the shareholders if ownership concentration is low. With rising ownership concentration this effect is dominated by a 'private benefits of control' problem. Larger shareholders apparently let value enhancing growth opportunities forgo to avoid contests of control and save private benefits of being the sole controlling firm owner. An alternative explanation for this finding is that rising new equity for growth enhancing investments is especially challenging in less developed countries due to weak investor protection rights. But whoever is actually afraid of investing, the incumbent firm owner or potential new investors, staying with either highly or lowly concentrated ownership seems not to be growth maximizing for firms in institutionally less developed economies. Das Wichtigste in Kürze (Summary in German)Unternehmerisches Verhalten wird maßgeblich von wichtigen institutionellen 2009 we find an inverted u-shaped relation of ownership concentration and firm performance for those firms that operate in non-EU-member countries as well as those firms that are situated in less developed legal systems according to Freedom House ratings. We interpret these findings as evidence for a classic agency problem in the lower part of the ownership concentration distribution that is dominated by a 'private benefits of control' problem with rising ownership concentration. JEL-Classification: G32, L25, O16, P31

Ownership Concentration, Dividend Payout and Firm Performance: The Case of Malaysia

“…This paper finds a positive relationship between ownership concentration and firm performance as the shareholders can implement effective monitoring activities on the management and other controlling shareholders who may have different objectives toward the firm. These findings are aligned with those of Chen, Cheung, Stouraitis, and Wong (2005), Heugens, Van Essen, and van Oosterhout (2009), Harada and Nguyen (2011), Ma et al (2010), and Balsmeier and Czarnitzki (2015). This study helps to create guidelines for the relevant policy makers to plan and design policies that will suit the Malaysian business environment as it shows that there is a need to strengthen the policy to protect minority shareholders in Malaysia.…”

Role of Ownership Concentration and Dividend Policy on Firm Performance

“…It considered an essential indicator of corporate governance mechanisms to reduce agency issues. It is concerned with agency theory that resolves the conflicts of interest among managers and shareholders (Shleifer & Vishny, 1986) and can control and monitor the team (Balsmeier & Czarnitzki, 2017;Nguyen, Locke, & Reddy, 2015) as well as can improve firm performance and valuation. A study by (Filatotchev, Jackson, & Nakajima, 2013) extended the use of corporate governance mechanisms across multiple regions in an institutional way.…”

The relationship between ownership concentration and performance in Czech Republic

“…However, other authors found no significant influence of ownership control on productivity in CEE countries such as Slovenia (Damijan et al, 2004) or company performance of Hungarian (Earle et al, 2005), Czech (Nowak & Kubíček, 2012) and Polish companies (Grosfeld & Hashi, 2007). Balsmeier and Czarnitzki (2017) examine the relationship between ownership concentration and firm performance in the context of institutional environments in 28 Central and Eastern European transition countries and found an inverted U-shaped relation for non-EU and less developed countries.…”