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Ownership concentration beyond good and evil: is there an effect on corporate performance?

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Abstract

In this paper, we analyze the relationship between ownership concentration and firm performance, while accounting for the endogeneity of the ownership structure, a potential curvilinearity of the performance effect, differences in corporate governance systems, and alternative performance measures. Using a sample of 1,079 firms from 8 countries we find evidence for a curvilinear effect of ownership concentration on firm performance, which becomes insignificant after controlling for endogeneity. Hence, our results support the findings by Demsetz and Villalonga (J Corp Fin 7(3):209–233, 2001). More research is needed to disentangle the contradictory findings in prior works.

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Notes

  1. The relevant ownership and company information in both countries was available for less than 100 of the 150 largest companies.

  2. In our sample the correlation of total assets and market capitalization is as high as 0.71. Thus, the results of the regression analyses presented below are widely robust to the two alternative measure of firm size.

  3. Economist Intelligence Unit, Country Commerce, Country Profile, and Country Report, 2005 and 2006, U.S. Department of Commerce, Country Commercial Guide, 2005 and 2006 and U.S. Department of State, Country Reports on Human Rights Practices, 2005 and 2006.

  4. We also conducted the analyses on a 50% subsample. The results are comparable to the 25% subsample.

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Acknowledgments

We would like to thank Ansgar Richter and Klaus Uhlenbruck for valuable comments and suggestions on a previous draft of this paper. We are also very grateful to the members of the Millstein Center for Corporate Governance and Performance at the Yale School of Management, who encouraged and helped us to develop the paper. Finally, this paper benefited from the helpful comments received by the editor of the journal and the reviewers, as well as the participants of the SMS special conference 2010 in Finland.

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  1. Department of Strategy, Organization and Leadership, EBS Business School, Rheingaustraße 1, 65375, Oestrich-Winkel, Germany

    Christian Weiss & Stefan Hilger

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Correspondence to Christian Weiss.

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Weiss, C., Hilger, S. Ownership concentration beyond good and evil: is there an effect on corporate performance?. J Manag Gov 16, 727–752 (2012). https://doi.org/10.1007/s10997-011-9170-9

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