Skip to main content
SpringerLink
Log in
Book cover

Equity Ownership and Performance pp 35–68Cite as

Theoretical Background and Hypotheses

  • Chapter

  • 484 Accesses

Part of the Contributions to Economics book series (CE)

Keywords

These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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

Chapter
USD   29.95
Price excludes VAT (Canada)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD   84.99
Price excludes VAT (Canada)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD   109.99
Price excludes VAT (Canada)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Learn about institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. For an overview of selected studies and their findings see Table A.9 in Appendix A.5, p. 231.

    Google Scholar 

  2. Exceptions are the combined effect by Mørck et al. [1988] and the integrated argument by Stulz [1988]. These are combinations of before explained effects and are mentioned due to their importance and frequent use in literature.

    Google Scholar 

  3. See Chen et al. [1993], Cho [1998], Cleary [2000], Cui/Mak [2002], Gugler et al. [2003b], Hermalin/Weisbach [1991], Holderness et al. [1999], Hubbard/Palia [1995], Kole [1996], McConnell/Servaes [1990, 1995], Monsen et al. [1968], Mørck et al. [1988], Short/Keasey [1999], Short et al. [2002a, 1994], Stulz [1988], Welch [2003], and Wruck [1989].

    Google Scholar 

  4. Such functions were already found by Mørck et al. [1988] and Stulz [1988]. See Figure 3.3 and Figure 3.4, p. 51 and p. 53.

    Google Scholar 

  5. See Section 4.4.2, p. 89.

    Google Scholar 

  6. See Barnea et al. [1981, p. 8] and Richter/Furubotn [1999, p. 137].

    Google Scholar 

  7. Jensen/ Meckling [1976, p. 310]. See Richter/Furubotn [1999, p. 5].

    Google Scholar 

  8. See Barnea et al. [1981, pp. 25–26] and Richter/Furubotn [1999, p. 3].

    Google Scholar 

  9. See Jensen/Smith [1985, p. 96] and Richter/Furubotn [1999, p. 163].

    Google Scholar 

  10. See Jensen/Meckling [1976, p. 308] and Richter/Furubotn [1999, p. 25].

    Google Scholar 

  11. See Jensen/Meckling [1976, p. 305] and Richter/Furubotn [1999, p. 163].

    Google Scholar 

  12. See Richter/Furubotn [1999, p. 163].

    Google Scholar 

  13. See Richter/Furubotn [1999, pp. 144–145 and p. 509].

    Google Scholar 

  14. See Breid [1995, pp. 823–824].

    Google Scholar 

  15. See Darrough/Stoughton [1986, p. 501] and Spremann [1987, p. 343].

    Google Scholar 

  16. See Hartmann-Wendels [1989, p. 715] and Richter/Furubotn [1999, pp. 215–217].

    Google Scholar 

  17. See Kleine [1995, p. 31].

    Google Scholar 

  18. See Jensen/Meckling [1976, p. 309] and Jensen/Smith [1985, p. 97].

    Google Scholar 

  19. See Bushee [1998, p. 309] and Jensen/Smith [1985, p. 97].

    Google Scholar 

  20. In the shareholder-management conflict these might include the application of certain accounting standards [Jensen/Smith 1985, p. 126], the creation of a positive reputation [Spremann 1988, p. 619] or the fulfillment of the German Corporate Governance Code [Bassen et al. 2000].

    Google Scholar 

  21. See Coase [1937, pp. 390–391], Jensen/Meckling [1976, p. 308], and Jensen/Smith [1985, p. 97].

    Google Scholar 

  22. See Jensen/Meckling [1976, p. 308].

    Google Scholar 

  23. See Barnea et al. [1981, p. 15], Jensen/Meckling [1976, p. 308], and Swoboda [1982, p. 710].

    Google Scholar 

  24. See Rappaport [1995, pp. 6–7].

    Google Scholar 

  25. See Achleitner/Wichels [2000, p. 7] and Barnea et al. [1981, p. 8].

    Google Scholar 

  26. See Achleitner/Wichels [2000, p. 7], Barnea et al. [1981, p. 31], Byrd et al. [1998, p. 15–18], and La Porta et al. [2000, p. 4].

    Google Scholar 

  27. See Section 2.2.2, p. 13. For an overview over studies on ownership concentration and its effect on corporate control see Holderness [2003] and Short [1994].

    Google Scholar 

  28. See Shleifer/Vishny [1986, p. 463].

    Google Scholar 

  29. See Bøhren/ Ødegaard [2003, pp. 4–5], Bushee [1998, p. 309], Holderness [2003, p. 56], Shleifer/Vishny [1997, p. 754], and Shleifer/Vishny [1986]. This hypothesis is theoretically proven by the models of Grossman [1976], Grossman/Hart [1980], Shleifer/Vishny [1986] and others as Bolton/von Thadden [1998], Burkart et al. [1997], Huddart [1993], Leech [2001], and Maug [1998]. Empirical evidence supporting this hypothesis is found by several studies as Agrawal/Knoeber [1996], Agrawal/Mandelker [1990], Bebchuk/Fried [2003], Bertrand/Mullainathan [2000], Brailsford et al. [2002], Carney/Gedajlovic [2002], Denis/Serrano [1996], Edwards/Weichenrieder [1999, 2004], Franks et al. [1997], Gedajlovic/Shapiro [2002], Hill/Snell [1989], Hindley [1970], Kaplan [1989], Monsen et al. [1968], Mørck et al. [1988], Pedersen/Thomsen [1998, 1999], Renneboog [2000], Short et al. [2002a], Wruck [1989], Yafeh/Yosha [1995], and Zeckhauser/Pound [1990].

    Google Scholar 

  30. Such a relation was found by several studies as Hindley [1970], Lehmann/Weigand [2000], and Pedersen/Thomsen [1999].

    Google Scholar 

  31. See Burkart et al. [1997, p. 674] and Pagano/Röell [1998, pp. 187–190].

    Google Scholar 

  32. See Aggarwal/Samwick [2003], Barclay/Holderness [1989], Dyck/Zingales [2004], Zingales [1994], and Zwiebel [1995].

    Google Scholar 

  33. See Barclay/Holderness [1989, p. 372] and Holderness [2003, pp. 55–56].

    Google Scholar 

  34. See Bebchuk [1999], Bebchuk et al. [2000], Burkart et al. [1997], Goshen [2003], Zingales [1994], and Zwiebel [1995].

    Google Scholar 

  35. See also Anderson/Reeb [2003, p. 1304], Becht [1999], and Lemmon/Lins [2003, pp. 1445–1446 and p. 1466].

    Google Scholar 

  36. See Barclay/Holderness [1989] and La Porta et al. [2002, p. 1148]. This problem is similar to the general entrenchment argument of insider ownership. See Chapter 3.4.1, p. 48.

    Google Scholar 

  37. See Bolton/von Thadden [1998, p. 3] and furthermore Barclay/Holderness [1989] and Becht [1999].

    Google Scholar 

  38. See Elton/Gruber [1995, p. 149–151] and for empirical evidence see Beaver et al. [1970], Hartzell/Starks [2003], Rosenberg/Guy [1976], and Thompson II [1976].

    Google Scholar 

  39. See Bolton/von Thadden [1998, pp. 2–3], Fama/Jensen [1983a, p. 329], and Thomsen [2005, p. 4].

    Google Scholar 

  40. See Alchian [1950], Becker [1962], Friedman [1953, p. 22], and Williamson [1985, p. 22].

    Google Scholar 

  41. See Mathiesen [2002, pp. 23–24].

    Google Scholar 

  42. See Anderson/Reeb [2003, p. 1303], Chang [2003], Demsetz/Lehn [1985], Lemmon/Lins [2003, p. 1446], Loderer/Martin [1997, p. 237], and Thompson II [1976, p. 2].

    Google Scholar 

  43. See Jensen et al. [1992, p. 250].

    Google Scholar 

  44. The pecking order theory was first proposed by Donaldson [1961] to explain observed financial behavior of firms. Myers/Majluf [1984] and Myers [1984] introduced a modified version with informational asymmetries and bankruptcy costs to also influence capital structure policy. It states that, as far as firms can choose, they prefer internal over equity financing and equity over debt financing.

    Google Scholar 

  45. See Jensen [1986, pp. 323–329].

    Google Scholar 

  46. For a more detailed explanation see Chapter 3.3.1, p. 44.

    Google Scholar 

  47. The cost-of-capital argument is mediated by risk and the profit-debt-ownership argument by leverage. For a list of the included control variables see Table 4.5, p. 94.

    Google Scholar 

  48. For a literature review on insider ownership and performance see Short [1994] and Holderness [2003].

    Google Scholar 

  49. See Benston [1985], Brandhoff [1999, p. 223], Byrd et al. [1998, pp. 18–19], Cebenoyan et al. [2000, p. 23], Cui/Mak [2002, p. 315], and Jensen/Meckling [1976, p. 312–313]. Next to simple stock ownership similar amelioration of the agency conflict can be achieved through different compensation designs. See Byrd et al. [1998, pp. 19–21], Huddart [1993], and Jensen/Murphy [1990].

    Google Scholar 

  50. See Achleitner/Wichels [2000, pp. 7 and 10], Bøhren/Ødegaard [2003, p. 5], and Cebenoyan et al. [2000, p. 23]. For an overview over selected studies assuming the incentive alignment argument and their results see Table A.7 in Appendix A.5, p. 229.

    Google Scholar 

  51. For an overview over selected studies assuming the general entrenchment argument and their results see Table A.8 in Appendix A.5, p. 230.

    Google Scholar 

  52. The shareholder recognizes the opportunistic behavior of the management, but cannot prevent it. See Grossman/Hart [1986], and Williamson [1975].

    Google Scholar 

  53. The notation “entrenchment hypothesis” was first introduced by Mørck et al. [1988, p. 294].

    Google Scholar 

  54. See Mørck et al. [1988, pp. 293–294], Shleifer/Vishny [1989, pp. 123–124], and Stulz [1988, pp. 27–28].

    Google Scholar 

  55. See Mørck et al. [1988, p. 294].

    Google Scholar 

  56. See Demsetz/Ricardo-Campbell [1983] and Fama/Jensen [1983b].

    Google Scholar 

  57. See Jensen/Ruback [1983], Mørck et al. [1988, p. 294], Stulz [1988, p. 50], and Walkling/Long [1984].

    Google Scholar 

  58. The N-shape was often applied as for instance by Brailsford et al. [2002], Chen et al. [1993], Chen/Ho [2000], Cho [1998], Cleary [2000], Cui/Mak [2002], Gugler et al. [2003b], Hermalin/Weisbach [1991], Hubbard/Palia [1995], Kole [1996], Mudambi/Nicosia [1998], Short/Keasey [1999], Short et al. [2002a, 1994], and Welch [2003]. However, the thresholds of 5% and 25% were often altered.

    Google Scholar 

  59. See McConnell/Servaes [1990], McConnell/Servaes [1995], and Stulz et al. [1990].

    Google Scholar 

  60. Stulz’s argument was also applied by Holderness et al. [1999], McConnell/-Muscarella [1985], McConnell/Servaes [1990, 1995], Slovin/Sushka [1993], Song/-Walkling [1993], Stulz [1990], and Stulz et al. [1990].

    Google Scholar 

  61. This hypothesis is assumed by Bahng [2002], Eckbo/Smith [1998], and Himmelberg et al. [1999].

    Google Scholar 

  62. See Jensen [1986, p. 324].

    Google Scholar 

  63. See Mathiesen [2002, pp. 22–23]. The capital structure neutralizing effect was also mentioned by McEachern [1975, p. 48].

    Google Scholar 

  64. See Kole [1996, p. 16].

    Google Scholar 

  65. See Byrd et al. [1998, pp. 18–21], Huddart [1993], and Jensen/Murphy [1990]. For studies on the effect of the salary level and management turnover see Baker et al. [1988], Dahya et al. [1998], Denis/Serrano [1996], and Warner et al. [1988]. For performance based boni see Baker et al. [1988], Bushman et al. [1996], Gilson [1989], Kaplan [1994], Lambert/Larcker [1987], Murphy/Zimmerman [1993], and Sloan [1993]; for accounting based boni see Banker et al. [1996] and Kole/Lehn [1997] and for market-based boni see Yermack [1995] and Mehran [1995].

    Google Scholar 

  66. See Lorie/Niederhoffer [1968], Masson [1971, p. 1291], and McEachern [1975, pp. 92–93].

    Google Scholar 

  67. See Cho [1998, p. 115] and Yermack [1997].

    Google Scholar 

  68. Lorie/ Niederhoffer [1968] started a whole series of papers examining if insider can outperform other investors by using their inside knowledge. See Ahuja et al. [2005], Beneish/Vargus [2002], Burton et al. [2003], Bushman et al. [2005], Chalmers et al. [2002], Gombola et al. [1999], Hanson/Song [1995], Hu/H. [2001], Lee [2002], Pescatrice et al. [1992], and Zhang [2005].

    Google Scholar 

  69. See Mußler [2005], Loderer/Martin [1997, p. 237], and Mathiesen [2002, p. 20]. Studies analyzing the insider-investment argument are Demsetz [1986], Eckbo/-Smith [1998], Hermalin/Weisbach [1991], Jaffe [1974], Loderer/Martin [1997], Rozeff/Zaman [1988], and Seyhun [1986].

    Google Scholar 

  70. See Taylor [1990, p. 70].

    Google Scholar 

  71. Hand [1990] uses institutional ownership even as proxy for sophisticated investors.

    Google Scholar 

  72. See Becht et al. [2002, pp. 38–41], Byrd et al. [1998, pp. 23–25], Jensen/Warner [1988, pp. 27–28], Maug [1998], and Moyer et al. [1992, p. 32]. The monitoring effect is proven positive by several studies like Agrawal/Knoeber [1996], Agrawal/-Mandelker [1990], Bethel et al. [1997], Brickley et al. [1988], Chaganti/Damanpour [1991], Chowdhury/Geringer [2001], Dahya et al. [1998], Elston [2004], Elston et al. [2002], Gugler et al. [2003b], Holderness/Sheehan [1985], Huson [1997], Jones/Morse [1997], McConnell/Servaes [1990], Mikkelson/Ruback [1985], Nesbitt [1994], Nickell et al. [1997], Nyman/Silberstan [1978], Opler/Sokobin [1997], Pound [1988a], Ryan/Schneider [2002], Shome/Singh [1995], Short/Keasey [1999], Smith [1996], and Strickland et al. [1996].

    Google Scholar 

  73. See also Jensen/Warner [1988, pp. 25–27], Bushee [1998, p. 308], and Dechow/-Sloan [1991].

    Google Scholar 

  74. See Bebchuk/Fried [2003].

    Google Scholar 

  75. See Froot et al. [1992a, pp. 50–55].

    Google Scholar 

  76. See Graves/Waddock [1990, pp. 76–77], Jacobs [1991, pp. 37–38], and Porter [1992, pp. 43–46].

    Google Scholar 

  77. See also Monks/Minow [1995, Chapter 2].

    Google Scholar 

  78. Furthermore, Eames [1997] reports no changes in the earnings response coefficients for changes in institutional ownership.

    Google Scholar 

  79. See Badrinath et al. [1989].

    Google Scholar 

  80. See Froot et al. [1992a, pp. 55–56] and Porter [1992, p. 43].

    Google Scholar 

  81. This view is also supported by Froot et al. [1992b] and Porter [1992, p. 43].

    Google Scholar 

  82. See Coffee Jr. [1991], Froot et al. [1992a, p. 56], and Porter [1992, p. 43].

    Google Scholar 

  83. See Anand [1991], Elgin [1992], Gugler et al. [2003b], and Lang/McNichols [1997].

    Google Scholar 

  84. See Bushee [1998, pp. 310–311] and Porter [1992, p. 46–49].

    Google Scholar 

  85. See Pound [1988a].

    Google Scholar 

  86. The results of Duggal/Millar [1999] and Edwards/Nibler [2000] support their evidence further.

    Google Scholar 

  87. Agrawal/ Mandelker [1990, pp. 143–144] call it also “passive voting hypothesis”.

    Google Scholar 

  88. See Loderer/Martin [1997, p. 237] and Demsetz/Lehn [1985].

    Google Scholar 

  89. See Agrawal/Knoeber [1996], Bathala/Moon [1994], Chen/Steiner [1999], Crutchley/Hansen [1989], Hermalin/Weisbach [1991], Holthausen/Larcker [1993], Jensen et al. [1992], and Moyer et al. [1992].

    Google Scholar 

  90. See Agrawal/Knoeber [1996, p. 381].

    Google Scholar 

  91. See Hill/Snell [1989, pp. 28–29] and Holderness [2003, p. 56].

    Google Scholar 

  92. The substitution effect of agency devices was introduced by Jensen/Meckling [1976] and Jensen [1986] and especially pronounced on the relation of managerial ownership and debt.

    Google Scholar 

  93. See Jensen/Ruback [1983] and Walkling/Long [1984]. For a more detailed explanation see Section 3.4.1, p. 50.

    Google Scholar 

  94. See Chen/Steiner [1999, p. 123].

    Google Scholar 

  95. See Bathala/Moon [1994, pp. 40–41], Chen/Steiner [1999, pp. 122–123], Jensen/-Meckling [1976], and Jensen [1986]. The argument found empirical support by Bathala/Moon [1994]

    Google Scholar 

Download references

Rights and permissions

Reprints and permissions

Copyright information

© 2007 Physica-Verlag Heidelberg

About this chapter

Cite this chapter

(2007). Theoretical Background and Hypotheses. In: Equity Ownership and Performance. Contributions to Economics. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-1934-2_3

Download citation

Publish with us

Policies and ethics

search

Navigation