Review of Managerial Science

, Volume 2, Issue 1, pp 1–35 | Cite as

Insider ownership and corporate performance: evidence from Germany

Original Paper


In this paper we address the question whether insider ownership affects corporate performance. Evidence from studies dealing with Anglo-Saxon countries is rather inconclusive, especially because results seem to be significantly affected by endogeneity. Economically, this is due to the fact that in these countries insider ownership seems to be mainly driven by management’s compensation contracts. We argue that Germany is different in this regard, as insider ownership is often related to family control, stock-based compensation is less widespread, and the market for corporate control used to be less developed. Starting from this presumption, our data allows an unbiased observation as to whether insider ownership affects firm performance. Using a pooled data set of 648 firm observations for the years 2003 and 1998, we find evidence for a positive and significant relationship between corporate performance—as measured by stock price performance, market-to-book ratio and return on assets—and insider ownership. This relationship seems to be rather robust, even if we account for potential endogeneity by applying a 2SLS regression approach. Furthermore, the results hold for a sub-sample of firms that did not have a stock-based compensation program in place. Moreover, we find outside block ownership as well as more concentrated insider ownership to have a positive impact on corporate performance. Overall, the results indicate that ownership structure might be an important variable explaining the long term value creation in the corporate sector.


Ownership structure Shareholder structure Insider ownership Firm performance Corporate governance Agency costs 

JEL Classification




We thank Deutsche Börse AG for its cooperation in the German Entrepreneurial Index (GEX®) project, which is part of a broader research project concerning corporate governance and control structures in German listed companies with a special focus on insider ownership. We are grateful for financial support for this research project provided by the Bund der Freunde der Technischen Universität München e.V. and Deutsche Bundesbank. We owe special thanks to Ann-Kristin Achleitner, Markus Ampenberger, Stefan Bress, Wolfgang Drobetz, Silvia Elsland, Dietmar Harhoff, Felix Moldenhauer, Eric Nowak, Bernd Rudolph, Reinhard H. Schmidt, Martin Wallmeier, an anonymous referee, the participants of the CEFS-ODEON seminars in finance and entrepreneurship, Munich, the finance seminars at USI, Lugano, the annual meeting of the German Association of University Professors of Management 2006, Dresden, the EFMA annual meeting 2006, Madrid, the GEABA annual meeting 2006, Bielefeld, and the DGF annual meeting 2006, Oestrich-Winkel.


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Copyright information

© Springer-Verlag 2007

Authors and Affiliations

  1. 1.Center for Entrepreneurial and Financial Studies (CEFS) and Department for Financial Management and Capital MarketsTechnische Universität MünchenMünchenGermany

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