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The Role of Multiple Large Shareholders in Public Listed Firms: An Overview

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Corporate Governance

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Abstract

A key issue in corporate governance is whether large owners contribute to resolving agency problems or exacerbate them. This paper surveys how large shareholders interact among themselves and how the composition of the controlling group, as well as the type of shareholders, can affect both monitoring and the level of private benefit extraction and, consequently, firm value. Recent studies on ownership structure of listed firms reveal that family firms are the most common form of ownership. We therefore also analyse potential agency conflicts that can emerge between families and other large shareholders by examining the governance roles of the structures of multiple large shareholder.

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Notes

  1. 1.

    During the last decade, financial institutions in Organisation for Economic Co-operation and Development countries increased their total assets as a percentage of gross domestic product by 143 %, while the proportion of equity holdings in their portfolios more than doubled (Li et al. 2006).

  2. 2.

    Empirical evidence on tunnelling by family and other large blockholders is documented for Bulgaria by Atanasov (2005), for China by Gao and Kling (2008), for France by Boubaker and Sami (2011), for Hong Kong by Cheung et al. (2006), for India by Bertrand et al. (2002), for Japan by Weinstein and Yafeh (1998), for Russia and the US by Atanasov et al. (2006), for South Korea by Bae et al. (2002), and for Sweden by Bergstrom and Rydqvist (1990).

  3. 3.

    Several other studies provide evidence on whether earnings management influences share price. For example, Perry and Williams (1994) analyse earnings manipulation in the year preceding the public announcement of a management buyout and conclude that management manipulates discretionary accruals to understate earnings in the hope of decreasing the share price. Others demonstrate that the vehicle used for earnings management is transactions with related firms. For instance, Gordon and Henry (2005) show that in the US absolute adjusted abnormal accruals, a proxy for earnings management, is positively correlated with certain related-party transactions.

  4. 4.

    Yet a number of studies argue that multiple blockholders are unlikely to emerge (e.g., Winton 1993; Zwiebel 1995).

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Acknowledgements

NECE – research unit financed by the Portuguese Foundation for Science and Technology (FCT) pluriannual programme for research and development units.

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  1. University of Beira Interior, Portugal, Rua Marquês d’Ávila e Bolama, Covilh, Portugal

    Ana Paula Matias Gama

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  1. Ana Paula Matias Gama
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Editors and Affiliations

  1. , Dept. of Accounting Finance and Law, Champagne School of Management, Avenue Pierre Brossolette 217, Troyes Cedex, 10002, France

    Sabri Boubaker

  2. , Cambridge Judge Business School, University of Cambridge, Trumpington Street, Cambridge, CB2 1AG, United Kingdom

    Bang Dang Nguyen

  3. , Dept. of Finance & Information Systems, ISC Paris School of Management, Boulevard du Fort de Vaux 22, Paris, 75017, France

    Duc Khuong Nguyen

Appendix: Empirical Studies About Family Firms

Appendix: Empirical Studies About Family Firms

Authors

Country

Key findings

McConaughy et al. (1998)

Canada

Family firms outperform their non-family counterparts. Active management by the family and especially by the founder seems important for the firm to create value and be more profitable

Anderson and Reeb (2003)

US – S&P 500

Family firms with a founding family member CEO are more profitable. Descendants as CEO, however, do not seem to affect performance

Villalonga and Amit (2006)

US

Fortune 500 companies

Family firms in which the founder is active as CEO or chairperson perform well, while those with descendants as CEO or chairperson perform worse. Differentiation between ownership and control (e.g., through cross-holdings, pyramidal structures, or dual-class shares) negatively affect firm performance. Thus family firms per se do not outperform non-family firms

Pérez-González (2006)

Spain

Inherited control has a negative impact on both firm valuation and profitability that can be interpreted as a sign of nepotism if founders put their heirs in charge of the firm instead of an outsider

Barontini and Caprio (2006)

Western Europe

Family firms with a founder CEO perform best. Companies with descendants perform differently: If the descendant member of the family only assumes a non-executive position, the firm still outperforms non-family firms. If the descendant member is the CEO, the firm performs as well as a non-family firm. Only if the family takes no active role at all does the firm perform worse

Maury (2006)

Western Europe

Revealing a non-linear relation between control and performance, the results suggest that benefits from family ownership fade with higher levels of controls. Profitability increases with family control level, indicating that family management improves the company’s efficiency but minority shareholders cannot really profit from it

Favero et al. (2006)

Italy

Market performance is not different for family firms. When a dynamic performance measurement approach is used, similar positive results are found as for accounting measures. Hence differences in previous studies may be due to the different methods employed

Sraer and Thesmar (2007)

France

Founders explain most of the outperformance and describe different reasons linked to labour force, wages, and productivity explaining why the respective management type delivers superior performance

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Gama, A.P.M. (2012). The Role of Multiple Large Shareholders in Public Listed Firms: An Overview. In: Boubaker, S., Nguyen, B., Nguyen, D. (eds) Corporate Governance. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-31579-4_3

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