Unveiling the role of multiple blockholders: Evidence from closely held firms

Abstract

Research Question/Issue: This paper disentangles how the modes of ownership distribution among multiple blockholders and their heterogeneity shape principalprincipal conflicts and, in turn, affect firm performance. The paper offers empirical evidence from a panel of Italian closely held firms over the period 2009-2014. Research Findings/Insights:We explore the principal-principal conflicts among blockholders across two distinct control structures. When a single blockholder controls the firm, principal-principal conflicts are shaped by the trade-off between the alignment effect and the monitoring effect. In this scenario, we find that the relationship between the two largest blockholders' ownership concentration and firm performance is U-shaped. Furthermore, we show that heterogeneity across the two largest blockholder types has a negative effect on performance. In the absence of a controlling blockholder, firm control is usually obtained by forming coalitions, and principalprincipal conflicts involve the blockholders inside the controlling coalition and the other shareholders. We find that the ownership distribution and heterogeneity across blockholder types are negatively related to the size of controlling coalitions, and in turn, the size of controlling coalitions is positively correlated with firm performance.Theoretical/Academic Implications: We contribute to the principal-principal segment of agency theory by showing that the presence of a controlling blockholder is a key variable that alters the relationship between blockholders' ownership concentration and corporate performance, as well as the relationship between heterogeneity across the largest blockholders and firm performance.Practitioner/Policy Implications: Our findings across control structures in which multiple blockholders are present suggest that blockholders take different roles depending on the control structure in which they are involved. The implications of these findings relate to the design of the ownership structure of a firm.

The Psychological Foundations of Management in Family Firms: Values, Biases, and Heuristics

“…Focusing on family firm governance, Chrisman et al (2016) argue that managerial discretion is shaped by “prevailing cultural, political, regulatory, competitive, and capital market conditions” (p. 722). Additionally, the family members’ ability to impose specific heuristics in making strategic decisions depends on factors including the composition of the board of directors (Bettinelli, 2011), the heterogeneity among the largest blockholders (Russino et al, 2019), the implementation of mechanisms to disconnect cash flow and control rights, such as pyramids or loyalty shares. Focusing on family firm resources, the available cash flow and level of indebtedness appear to be respectively a key source and limitation of managerial discretion (Dagnino et al, 2019).…”

Corporate Governance, Bank Performance and Value:-Evidence from Pakistan

“…The literature on banks' corporate governance is mainly comprised of the assessment of risk-taking and the performance of the banks. Banks' risk-taking comportment varies with the shareholders' discretionary power within the structure of corporate governance of the banks (Laeven & Levine, 2009;Ponomareva et al, 2019;Russino et al, 2019). Moreover, capital reserve requirements and deposit insurance policies depend on the ownership structure of banks.…”

“…The firms in concentrated ownership are managed by large shareholders and owners and managers are alike hence the problems of the agency are likely to be limited Maheshwari & Gupta (Maheshwari & Gupta, 2018). However, a high concentration of ownership gives discretionary powers to larger shareholders due to which conflict of interest could arise with the minority shareholders (Johnson et al, 2000;Oradi et al, 2020;Russino et al, 2019). The owners of such firms possess rights to influence decisions and affect the operational activities due to equity tunneling i.e.…”

Taking stock of corporate governance research and future research opportunities

“…The international scope of corporate governance research is indicated by the diverse set of governance environments studied in recent CGIR articles that include Australia, Canada, China, Germany, India, Indonesia, Iran, Italy, Japan, Korea, Russia, Spain, Sweden, Taiwan, the United Kingdom, the United States, and Vietnam, as well as multicountry studies (e.g., Deloof, Du, & Vanacker, 2020; Desender, LópezPuertas‐Lamy, Pattitoni, & Petracci, 2020; García‐Sánchez & García‐Meca, 2018; Lazzarini & Musacchio, 2018; Qian, Cao, & Cao, 2018; Tribó, 2019; Zhou & Guillén, 2019). Corporate governance research is by no means restricted to the average publicly held corporation but also deals with the unique challenges associated with specific types of firms like, for instance, audit firms (La Rosa, Caserio, & Bernini, 2019), banks (Sheedy & Griffin, 2018), business groups (Shin, Hyun, Oh, & Yang, 2018), closely held firms (Russino, Picone, & Dagnino, 2019), declining firms (Abebe & Tangpong, 2018), entrepreneurial ventures (Pérez‐Calero, Larrañeta, & Wright, 2019), family firms (Yeh & Liao, 2019), foundations (Thomsen, Poulsen, Børsting, & Kuhn, 2018), institutional investors (Semenova & Hassel, 2019), intergovernmental organizations (Federo & Saz‐Carranza, 2018), initial public offerings (IPOs) (González, Guzmán, Tellez‐Falla, & Trujillo, 2019), as well as state‐owned enterprises (Apriliyanti & Randøy, 2019). This research intensity demonstrates the spread of corporate governance studies in multiple disciplines but also leads to higher levels of fragmentation of the field.…”

“…. Corporate governance research is by no means restricted to the average publicly held corporation but also deals with the unique challenges associated with specific types of firms like, for instance, audit firms (La Rosa, Caserio, & Bernini, 2019), banks (Sheedy & Griffin, 2018), business groups (Shin, Hyun, Oh, & Yang, 2018), closely held firms (Russino, Picone, & Dagnino, 2019), declining firms (Abebe & Tangpong, 2018), entrepreneurial ventures (Pérez-Calero, Larrañeta, & Wright, 2019), family firms (Yeh & Liao, 2019), foundations (Thomsen, Poulsen, Børsting, & Kuhn, 2018), institutional investors (Semenova & Hassel, 2019), intergovernmental organizations (Federo & Saz-Carranza, 2018), initial public offerings (IPOs) (González, Guzmán, Tellez-Falla, & Trujillo, 2019), as well as state-owned enterprises (Apriliyanti & Randøy, 2019). This research intensity demonstrates the spread of corporate governance studies in multiple disciplines but also leads to higher levels of fragmentation of the field.…”