Skip to main content

Advertisement

SpringerLink
Log in

Ownership structure, investors’ protection and corporate valuation: the effect of judicial system efficiency in family and non-family firms

  • Published:
Journal of Management and Governance Aims and scope Submit manuscript

Abstract

Research on the effect of ownership structure on firm performance shows no convergent evidence concerning the sign and form of the above-mentioned relationship. Similarly, there is no homogeneous evidence documenting family ownership concentration is always positively or negatively correlated with firm value, or irrelevant. This paper analyses whether and how the de facto investor protection provided by the judicial system affects the relationship between corporate performance and ownership structure in 1314 firms operating in four European countries (Germany, France, Italy, and Spain) over a five-year period, 2010–2014. Moreover, we analyse whether judicial system efficiency influences if and how family firms in the controlling coalition collude for expropriating minority shareholders. Our findings show that the level of shareholder protection, derived from judicial efficiency, is relevant to the relationship between ownership structure and firm performance, thus corroborating literature in that institutional contexts matter in explaining such relations. The results suggest the need for more efficient external mechanisms of corporate governance to facilitate investment in equity capital, thus decreasing the country risk perceived by investors.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3

Similar content being viewed by others

Notes

  1. Testparm is a joint test to determine whether the dummies for all years are equal to zero.

References

  • Agrawal, A., & Mandelker, G. (1990). Large and the monitoring of managers: The case of antitakeover charter amendments. Journal of Financial and Quantitative Analysis, 25, 143–161.

    Google Scholar 

  • Aiken, L. S., & West, S. G. (1991). Multiple Regression: Testing and Interpreting Interactions. Newbury Park: Sage Publications.

    Google Scholar 

  • Anderson, A., & Gupta, P. P. (2009). A cross-country comparison of corporate governance and firm performance: Do financial structure and the legal system matter? Journal of Contemporary Accounting & Economics, 5(2), 61–79.

    Google Scholar 

  • Anderson, R. C., & Reeb, D. M. (2003). Founding-family ownership and Firm performance: evidence from the S&P 500. The Journal of Finance, 58(3), 1301–1328.

    Google Scholar 

  • Bainbridge, S. M. (2003). The Business Judgment Rule as Abstention Doctrine. Research Paper No. 03-18, UCLA, School of Law, Law and Economics.

  • Banalieva, E. R., Eddleston, K. A., & Zellweger, T. M. (2015). When do family firms have an advantage in transitioning economies? Toward a dynamic institution-based view. Strategic Management Journal, 36, 1358–1377.

    Google Scholar 

  • Barclay, M. J., & Holderness, C. G. (1989). Private benefits from control of public corporations. Journal of Financial Economics, 25(2), 371–395.

    Google Scholar 

  • Bebchuk, L. A. (1999). A rent-protection theory of corporate ownership and control (No. w7203). National Bureau of Economic Research.

  • Bennedsen, M., & Wolfenzon, D. (2000). The balance of power in closely held corporations. Journal of Financial Economics, 58(1–2), 113–139.

    Google Scholar 

  • Berle, A., & Means, G. (1932). The Modern Corporation and Private Property. New York: Macmillan.

    Google Scholar 

  • Block, F., & Hege, U. (2001). Multiple Shareholders and Control Contests, Working Paper, Aix-Marseille, University.

  • Bolton, P., & Von Thadden, E. (1998). Blocks, liquidity, and corporate control. Journal of Finance, 53(1), 1–25.

    Google Scholar 

  • Boubaker, S., Mansali, H., & Rjiba, H. (2014). Large controlling shareholders and stock price synchronicity. Journal of Banking & Finance, 40, 80–96.

    Google Scholar 

  • Boubakri, N., Cosset, J., & Guedhami, O. (2005). Post-privatization corporate governance: The role of ownership structure and investor protection. Journal of Financial Economics, 76(2), 369–399.

    Google Scholar 

  • Brown, P., Preiato, J., & Tarca, A. (2014). Measuring country differences in enforcement of accounting standards: An audit and enforcement proxy. Journal of Business Finance & Accounting, 41(1–2), 1–52.

    Google Scholar 

  • Burkart, M., Panunzi, F., & Shleifer, A. (2003). Family firms. Journal of Finance, 58(5), 2167–2201.

    Google Scholar 

  • Bushee, B. J. (2001). Do institutional investors prefer near-term earnings over long-run value? Contemporary Accounting Research, 18(2), 207–246.

    Google Scholar 

  • Busta, I., Sinani, E., & Thomsen, S. (2014). Ownership concentration and market value of European banks. Journal of Management and Governance, 18(1), 159–183.

    Google Scholar 

  • CEPEJ The European Commission for the Efficiency of Justice (2010). http://www.coe.int/t/dghl/cooperation/cepej/evaluation/2010/JAReport2010_GB.pdf. Accessed October 15, 2015.

  • CEPEJ The European Commission for the Efficiency of Justice (2013). http://www.coe.int/t/dghl/cooperation/cepej/quality/2013_7_cepej_Judicial_maps_guidelines_en.pdf. Accessed October 15, 2015.

  • CEPEJ The European Commission for the Efficiency of Justice (2014). http://www.coe.int/t/dghl/cooperation/cepej/evaluation/2014/Rapport_2014_en.pdf. Accessed October 15, 2015.

  • Chua, J. H., Chrisman, J. J., Steier, L. P., & Rau, S. B. (2012). Sources of heterogeneity in family firms: An introduction. Entrepreneurship Theory and Practice, 36, 1103–1113.

    Google Scholar 

  • Claessens, S., Djankov, S., Fan, J. P. H., & Lang, L. H. P. (2002). Disentangling the incentive and entrenchment effects of large shareholdings. Journal of Finance, 57(6), 2741–2771.

    Google Scholar 

  • Connelly, B. L., Hoskisson, R. E., Tihanyi, L., & Certo, S. T. (2010). Ownership as a form of corporate governance. Journal of Management Studies, 47(8), 1561–1589.

    Google Scholar 

  • Courteau, L., Di Pietra, R., Giudici, P., & Melis, A. (2017). The role and effect of controlling shareholders in corporate governance. Journal of Management & Governance, 21, 1–12.

    Google Scholar 

  • Dahya, J., Dimitrov, O., & McConnell, J. J. (2008). Dominant shareholders, corporate boards, and corporate value: A cross-country analysis. Journal of Financial Economics, 87(1), 73–100.

    Google Scholar 

  • Daily, C. M., & Dalton, D. R. (1992). Financial performance of founder-managed versus professionally managed corporations. Journal of Small Business Management, 30, 25–34.

    Google Scholar 

  • de Miguel, A., Pindado, J., & de la Torre, C. (2004). Ownership structure and firm value: new evidence from Spain. Strategic Management Journal, 25(12), 1199–1207.

    Google Scholar 

  • Demsetz, H. (1983). The structure of ownership and the theory of the firm. Journal of Law and Economics, 26(2), 375–390.

    Google Scholar 

  • Demsetz, H., & Lehn, K. (1985). The structure of corporate ownership: causes and consequences. Journal of Political Economy, 93(6), 1155–1177.

    Google Scholar 

  • Demsetz, H., & Villalonga, B. (2001). Ownership structure and corporate performance. Journal of Corporate Finance, 7(3), 209–233.

    Google Scholar 

  • Driffield, N., Mahambare, V., & Pal, S. (2007). How does ownership structure affect capital structure and firm value? Recent evidence from East Asia. Economics of Transition, 15(3), 535–573.

    Google Scholar 

  • Eddelston, K., & Kellermanns, F. W. (2007). Destructive and productive family relationships: A steward theory perspective. Journal of Business Venturing, 22, 545–565.

    Google Scholar 

  • Faccio, M., Lang, L. H., & Young, L. (2001). Dividends and expropriation. American Economic Review, 91, 54–78.

    Google Scholar 

  • García-Meca, E., & Sánchez-Ballesta, J. P. (2010). The association of board independence and ownership concentration with voluntary disclosure: A meta-analysis. European Accounting Review, 19, 603–627.

    Google Scholar 

  • Gedajlovic, E., & Carney, M. (2010). Markets, hierarchies, and families: Toward a transaction cost theory of the family firm. Entrepreneurship Theory and Practice, 34, 1145–1172.

    Google Scholar 

  • Gedajlovic, E., Carney, M., Chrisman, J., & Kellermanns, F. (2012). The adolescence of family firm research: Taking stock and planning for the future. Journal of Management, 38, 1010–1037.

    Google Scholar 

  • Giovannini, R. (2010). Corporate governance, family ownership and performance. Journal of Management and Governance, 14(2), 145–166.

    Google Scholar 

  • Gomes, A. R., & Novaes, W. (2005). Sharing of control as a corporate governance mechanism. Working paper No. 01-029, University of Pennsylvania, Institute for Law & Economic Research.

  • Gómez-Mejía, L. R., Makri, M., & Larraza-Kintana, M. (2010). Diversification decisions in family controlled firms. Journal of Management Studies, 48(2), 223–252.

    Google Scholar 

  • Gompers, P. A., & Metrick, A. (2001). Institutional investors and equity prices. The Quarterly Journal of Economics, 116(1), 229–259.

    Google Scholar 

  • Gorton, G., & Schmidt, F. (2000). Class struggle inside the firm: a study of German codetermination. Center for Financial Institutions Working Paper 00-36, Wharton School Center for Financial Institutions, University of Pennsylvania.

  • Guillen, M., & Capron, L. (2016). State capacity, minority shareholder protections, and stock market development. Administrative Science Quarterly, 61, 125–160.

    Google Scholar 

  • Habbershon, T., & Williams, M. (1999). A resource-based framework for assessing the strategic advantage of family firms. Family Business Review, 12, 1–25.

    Google Scholar 

  • Holmstrom, B., & Tirole, J. (1993). Market liquidity and performance monitoring. The Journal of Political Economy, 101(4), 678–709.

    Google Scholar 

  • Hoskisson, R. E., Hitt, M. A., Johnson, R. A., & Grossman, W. (2002). Conflicting voices: the effects of institutional ownership heterogeneity and internal governance on corporate innovation strategies. Academy of Management Journal, 45(4), 697–716.

    Google Scholar 

  • Jackson, H. E., & Roe, M. J. (2009). Public and private enforcement of securities laws: Resource-based evidence. Journal of Financial Economics, 93(2), 207–238.

    Google Scholar 

  • Jara-Bertin, M., López-Iturriaga, F. J., & Lòpez-de-Foronda, Ó. (2008). The contest to control in European family firms: how other shareholders affect firm value. Corporate Governance: An International Review, 16(3), 146–159.

    Google Scholar 

  • Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.

    Google Scholar 

  • Jiang, Y., & Peng, M. W. (2011). Are family ownership and control in large firms good, bad, or irrelevant? Asia Pacific Journal of Management, 28(1), 15–39.

    Google Scholar 

  • Kaplan, S., & Minton, B. (1994). Appointments of outsiders to Japanese boards. Determinants and implications for managers. Journal of Financial Economics, 23, 225–258.

    Google Scholar 

  • Krivogorsky, V., & Grundnitsky, G. (2010). Country-specific institutional effects on ownership: concentration and performance of continental European firms. Journal of Management and Governance, 14, 167–193.

    Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (1999). Corporate ownership around the world. Journal of Finance, 54(2), 471–517.

    Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1997). Legal determinants of external finance. Journal of Finance, 52(3), 1131–1150.

    Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1998). Law and finance. Journal of Political Economy, 106(6), 1113–1155.

    Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (2000). Investor protection and corporate governance. Journal of Financial Economics, 58(1–2), 3–27.

    Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (2002). Investor protection and corporate valuation. Journal of Finance, 57(3), 1147–1170.

    Google Scholar 

  • Laeven, L., & Majnoni, G. (2005). Does judicial efficiency lower the cost of credit? Journal of Banking & Finance, 29(7), 1791–1812.

    Google Scholar 

  • Leech, D., & Leahy, J. (1991). Ownership structure, control type classifications and the performance of large British companies. Economic Journal, 101(409), 1418–1437.

    Google Scholar 

  • Lehmann, E., & Weigand, J. (2000). Does the governed corporation perform better? Governance structures and corporate performance in Germany. Review of Finance, 4(2), 157–195.

    Google Scholar 

  • Lepore, L., Paolone, F., Pisano, S., & Alvino, F. (2017). A cross-country comparison of the relationship between ownership concentration and firm performance: Does judicial system efficiency matter? Corporate Governance: The International Journal of Business in Society, 17(2), 321–340.

    Google Scholar 

  • Li, H., Wang, Z., & Deng, X. (2008). Ownership, independent directors, agency costs and financial distress: Evidence from Chinese listed companies. Corporate Governance: the International Journal of Business in Society, 8(5), 622–636.

    Google Scholar 

  • Liu, W., Yang, H., & Zhang, G. (2012). Does family firm excel in firm performance? An institution-based view. Asia Pacific Journal of Management, 29, 965–987.

    Google Scholar 

  • Maury, B. (2006). Family ownership and firm performance: Empirical evidence from Western European corporations. Journal of Corporate Finance, 12(2), 321–341.

    Google Scholar 

  • Maury, B., & Pajuste, A. (2005). Multiple large shareholders and firm value. Journal of Banking & Finance, 29(7), 1813–1834.

    Google Scholar 

  • Miller, D., & Le Breton-Miller, I. (2006). Family governance and firm performance: Agency, stewardship, and capabilities. Family Business Review, 19, 73–86.

    Google Scholar 

  • Miller, D., Le Breton-Miller, I., Lester, R. H., & Cannella, A. (2007). Are family firms really superior performers? Journal of Corporate Finance, 13, 829–858.

    Google Scholar 

  • Miller, D., Le Breton-Miller, I., & Scholnick, B. (2008). Stewardship vs. Stagnation. Journal of Management Studies, 45(1), 50–78.

    Google Scholar 

  • Miller, D., Minichilli, A., & Corbetta, G. (2013). Is family leadership always beneficial? Strategic Management Journal, 34, 553–571.

    Google Scholar 

  • Minichilli, A., Zattoni, A., Nielsen, S., & Huse, M. (2012). Board task performance: An exploration of micro-and macro-level determinants of board effectiveness. Journal of Organizational Behavior, 33(2), 193–215.

    Google Scholar 

  • Minichilli, A., Zattoni, A., & Zona, F. (2009). Making boards effective: An empirical examination of board task performance. British Journal of Management, 20(1), 55–74.

    Google Scholar 

  • Morck, R., Stangeland, D., & Yeung, B. (1998). Inherited wealth, corporate control, and economic growth: The Canadian disease, in concentrated corporate ownership (NBER Working Paper 6814). Cambridge, MA: National Bureau of Economic Research.

  • Morck, R., Wolfenzon, D., & Yeung, B. (2005). Corporate governance, economic entrenchment, and growth. Journal of Economic Literature, 63, 655–720.

    Google Scholar 

  • Mudambi, R., & Nicosia, C. (1998). Ownership structure and firm performance: evidence from the UK financial services industry. Applied Financial Economics, 8(2), 175–180.

    Google Scholar 

  • Ocasio, W. (1994). Political dynamics and the circulation of power: CEO succession in U.S. industrial corporations, 1960–1990. Administrative Science Quarterly, 39(2), 285–312.

    Google Scholar 

  • Pagano, M., & Röell, A. (1998). The choice of stock ownership structure: agency costs, monitoring, and the decision to go public. The Quarterly Journal of Economics, 113(1), 187–225.

    Google Scholar 

  • Pedersen, T., & Thomsen, S. (2003). Ownership structure and value of the largest European firms: The importance of owner identity. Journal of Management and Governance, 7(1), 27–55.

    Google Scholar 

  • Peng, M. W., & Jiang, Y. (2010). Institutions behind family ownership and control in large firms. Journal of Management Studies, 47(2), 253–273.

    Google Scholar 

  • Peng, M. W., Sun, W., Vlas, C., Minichilli, A., & Corbetta, G. (2017). An institution-based view of large family firms: A recap and overview. Entrepreneurship Theory and Practice, 42(2), 187–205.

    Google Scholar 

  • Pollack, R. A. (1985). A transaction cost approach to families and households. Journal of Economic Literature, 23, 581–608.

    Google Scholar 

  • Prencipe, A., Bar-Yosef, S., Mazzola, P., & Pozza, L. (2011). Income smoothing in family-controlled companies: Evidence from Italy. Corporate Governance: An International Review, 19(6), 529–546.

    Google Scholar 

  • Santos, M. S., Moreira, A. C., & Vieira, E. S. (2014). Ownership concentration, contestability, family firms, and capital structure. Journal of Management and Governance, 18(4), 1063–1107.

    Google Scholar 

  • Schulze, W. S., Lubatkin, M. H., & Dino, R. (2003). Toward a theory of agency and altruism in family firms. Journal of Business Venturing, 18, 473–490.

    Google Scholar 

  • Selznick, P. (1957). Leadership in administration: A sociological interpretation. Evanston, IL: Evanston, Row Peterson.

    Google Scholar 

  • Setia-Atmaja, L. Y. (2009). Governance mechanisms and firm value: The impact of ownership concentration and dividends. Corporate Goverance: An International Review, 17(6), 694–709.

    Google Scholar 

  • Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. Journal of Political Economy, 94(3), 461–488.

    Google Scholar 

  • Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737–783.

    Google Scholar 

  • Steier, L. (2003). Variants of agency contracts in family-financed ventures as a continuum of familial altruistic and market rationalities. Journal of Business Venturing, 18, 597–618.

    Google Scholar 

  • Thornton, P. H., & Ocasio, W. (1999). Institutional Logics and the historical contingency of power in organizations: Executive succession in the higher education publishing industry, 1958–1990. American Journal of Sociology, 105(3), 801–843.

    Google Scholar 

  • Van Ees, H., Gabrielsson, J., & Huse, M. (2009). Toward a behavioral theory of boards and corporate governance. Corporate Governance: An International Review, 17(3), 307–319.

    Google Scholar 

  • Van Ees, H., Postma, T. J., & Sterken, E. (2003). Board characteristics and corporate performance in the Netherlands. Eastern Economic Journal, 29(1), 41–58.

    Google Scholar 

  • Verbeke, A., & Kano, L. (2010). Transaction cost economics (TCE) and the family firm. Entrepreneurship Theory and Practice, 32, 1173–1182.

    Google Scholar 

  • Villalonga, B., & Amit, R. (2006). How do family ownership, control and management affect firm value? Journal of Financial Economics, 80(2), 385–417.

    Google Scholar 

  • Volpin, P. F. (2002). Governance with poor investor protection: Evidence from top executive turnover in Italy. Journal of Financial Economics, 64(1), 61–90.

    Google Scholar 

  • Wang, Z. (2017). Turf War or Collusion: An Empirical Investigation of Conflict of interest between large shareholders. Corporate Governance: An International Review, 25(5), 358–380.

    Google Scholar 

  • Weiss, C., & Hilger, S. (2012). Ownership concentration beyond good and evil: is there an effect on corporate performance? Journal of Management and Governance, 16(4), 727–752.

    Google Scholar 

  • Winton, A. (1993). Limitation of liability and the ownership structure of the firm. Journal of Finance, 48(2), 487–512.

    Google Scholar 

  • World Bank (2016). CPIA transparency, accountability, and corruption in the public sector rating. https://data.worldbank.org/indicator/. Accessed September 30, 2016.

  • Wu, C. P., & Wu, S. N. (2005). Study on financial situation analysis and prediction model based on value creating and corporate governance. Economic Review, 11, 99–110.

    Google Scholar 

  • Xu, X. N., & Wang, Y. (1997). Ownership structure, corporate governance and firm’s performance. Working Paper, World Bank, Washington, DC.

  • Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., & Jiang, Y. (2008). Governing the corporation in emerging economies: A review of the principal-principal perspective. Journal of Management Studies, 45, 196–220.

    Google Scholar 

  • Zattoni, A. (1999). The structure of corporate groups: The Italian case. Corporate Governance: An International Review, 7(1), 38–48.

    Google Scholar 

  • Zattoni, Z., & Minichilli, A. (2009). Stock incentive plans in italian listed companies. Diffusion and characteristics in 2000 and 2006. Corporate Governance An International Review, 17(2), 224–237.

    Google Scholar 

  • Zhong, N., Wang, S., & Yang, R. (2017). Does corporate governance enhance common interests of shareholders and primary stakeholders? Journal of Business Ethics, 141(2), 411–431.

    Google Scholar 

  • Zwiebel, J. (1995). Block investment and partial benefits of corporate control. The Review of Economic Studies, 62(2), 161–185.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Law, Parthenope University of Naples, Generale Parisi 13, 80133, Naples, Italy

    Luigi Lepore

  2. Department of Accounting, Business and Economics, Parthenope University of Naples, Generale Parisi 13, 80133, Naples, Italy

    Francesco Paolone

  3. Department of Management and Technology, Bocconi University, Roentgen, 20136, Milan, Italy

    Domenico Rocco Cambrea

Authors
  1. Luigi Lepore
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Francesco Paolone
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Domenico Rocco Cambrea
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Francesco Paolone.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Lepore, L., Paolone, F. & Cambrea, D.R. Ownership structure, investors’ protection and corporate valuation: the effect of judicial system efficiency in family and non-family firms. J Manag Gov 22, 829–862 (2018). https://doi.org/10.1007/s10997-018-9405-0

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10997-018-9405-0

Keywords

Search

Navigation