Ownership Structure, Managerial Behavior and Corporate Value

Managerial ownership and performance

“…The evidence is far from conclusive for managerial ownership levels greater than 15%. The latter finding contrasts previous findings in the literature, which, as mentioned above, indicate a specific complex relationship between managerial ownership and performance at intermediate and high levels of managerial ownership (see Short and Keasey, 1999;and Davies et al, 2005 for evidence from UK firms). The results also support the view that the nature of the ownership-performance relationship is likely to vary across firms with different characteristics (e.g.…”

“…Finally, the results of model (5), which include the 5th power of executive ownership in the model, support the quintic structure that Davies et al (2005) propose. In particular, the results suggest the following four turning points in the curve: 13%, 25%, 49% and 72% of executive ownership.…”

“…Finally, following earlier studies on the subject (Davies et al, 2005;Short and Keasey, 1999), the empirical specification also controls for size, leverage and investment differences across firms by including the variables LEVERAGE, which is the ratio of total debt to total assets, SIZE, which is a market value of equity (in logarithm) proxy of firm size and INVESTMENT, which is the ratio of capital expenditures to total assets in the model. Table 1 provides the descriptive statistics for the variables used in the analysis.…”

“…Several other studies adopt even more complicated functional forms to describe this relationship. For example, Hermalin and Weisbach (1991) find an inverse W-shaped relationship, Cui and Mak (2002) report a W-shaped relationship, whereas Davies et al (2005) use a quintic structure that leads to a two-hump managerial ownership-performance curve. According to Davies et al (2005), the limited effectiveness of the market for corporate control to work as an effective governance mechanism and the almost perfect alignment of interests between managers and shareholders, which are both common in cases of managerial ownership higher than 50%, can explain the additional turning points in the curve.…”

Capital structure, equity ownership and firm performance

“…Whether firm value would be maximized in the presence of large controlling shareholders depends on the entrenchment effect (Claessens et al, 2002;Villalonga and Amit, 2006;Dow and McGuire, 2009). Several studies document either a direct (e.g., Shleifer and Vishny, 1986;Claessens et al, 2002;Hu and Zhou, 2008) or a non-monotonic (e.g., Morck et al, 1988;McConnell and Servaes, 1995;Davies et al, 2005) relationship between ownership structure and firm performance while others (e.g., Demsetz and Lehn, 1985;Himmelberg et al, 1999;Demsetz and Villalonga, 2001) find no relation between ownership concentration and firm performance. 6 Family firms are a special class of large shareholders with unique incentive structures.…”