Ownership concentration and market value of European banks

This paper investigates the relationship between ownership concentration and market value of European banks, and the role of the institutional environment in shaping this relationship. Using GMM dynamic estimator on a sample of European banks over a 13-year period (1993–2005) we find on average a negative effect of ownership concentration on bank value, measured by Tobin's Q. However, this effect varies across different institutional settings; while higher ownership concentration results in a lower bank value particularly in the countries belonging to German legal family, the impact of ownership concentration is positive in Scandinavia. We propose that, besides the legal protection of small investors, the differences in the impact of ownership concentration across the countries could be due to the identity of the predominant owners, i.e. financial institutions in Germany and trusts and foundations in Scandinavia. This in turn implies that restrictions of shareholdings in banks could alleviate governance problems in some countries, but lower bank valuation in others.     

Corporate Political Activity and Firm Performance: The Moderating Effects of International and Product Diversification

Prior research has found that corporate political activity (CPA) can both positively and negatively impact firm performance. Combining agency theory with the resource-based view, we examine the relationship between domestic lobbying (a key form of CPA) and firm performance by explicating the moderating effects of international and product diversification. We argue that expansion into international and product markets increases a firm's resources and reduces agency costs in domestic lobbying. Our results, based on a sample of 737 firms, show that lobbying is positively associated with performance for firms that are diversified in both international markets and along product-lines; whereas lobbying is counter-productive for purely domestic and undiversified firms. Our results contribute to the literature on the firm performance implications of corporate political activity by highlighting the roles of international and product diversification.     

Editorial

In this paper we want to investigate the impact of company owners on the low percentage of women on management boards and whether they are attempting to increase this percentage. After analysing whether ownership concentration influences the number of women on management boards we distinguish between different types of owners. We find that ownership concentration has no effect on the presence of women on German management boards, we show however that institutional and individual owners have a significantly positive effect. Classifying institutional owners into national and foreign owners illustrates that foreign investors are the primary driver of the positive effect within the class of institutional owners; the presence of national investors that are strongly influenced by the national banking system does not show any effect. Our analyses are based on 15,976 management board member positions from 2000 to 2007 in approximately 600 German-listed companies.     

Ownership concentration,contestability, family firms,and capital structure

This study analyses the distribution of power among the several blockholders of a firm and the identity of those blockholders as a determinant of firm leverage. Using a sample of 694 firms from 12 Western European countries, our results support a negative relationship between ownership concentration in the hands of the main blockholder and firm leverage. Moreover, we detect that the presence of a second and third large shareholder (beyond the first blockholder) has a significant positive effect on the leverage ratio. In addition, the results show that contestability in family firms plays a more relevant role. Finally, we show that family firms do have significant impact on firm leverage level, and this impact varies depending on the legal framework and institutional environment. In our main sample the results show family firms negatively affect market leverage, supporting the theory that family firms are more averse to an increase in the debt level due to the risk of bankruptcy and financial distress as a result of having an under-diversified portfolio. In contrast, the opposite effect is found in the sample that excludes the United Kingdom. This last result cannot be explained by agency theory, given that family businesses are those that suffer less from Type I agency problems. This result suggests either some difficulty in financing their investments by issuing new equity or the need to use debt as a signal of the quality of its investments. Our results prove to be stable against a battery of robustness tests.     

Ownership Strategy and Foreign Affiliate Performance in Multinational Family Business Groups: A Double-edged Sword

We argue that ownership strategies can be a double edged sword for multinational family business groups from emerging economies and the performance of their affiliates located abroad. We test an integrated framework based on internalization and agency theory on a longitudinal dataset of multinational family business groups from Taiwan. We find evidence for the contingent impact of cultural differences and family management on the association between ownership strategy and affiliate performance. While direct ownership is seen as offering more control over the affiliate, we show that this comes at a performance cost for affiliates in culturally different host countries and affiliates under family management. Indirect ownership seems to be one way to positively influence affiliate performance in culturally distant countries, but seems not to be contingent on family management utilization.     

Family firms and high technology Mergers & Acquisitions

We examine whether family firms undertake value creating high technology M&A. We also examine whether level of ownership, diversification, agency issues and CEO type matter. Our sample consists of high-technology M&A undertaken by Canadian firms over the period 1997–2006. Canada offers a setting with many family firms and the use of control enhancing mechanisms such as dual class shares and pyramid structures. We find a positive relationship between family ownership and announcement period abnormal returns. This relationship, however, starts to decrease at higher levels of ownership but remains overall positive. We also show that the agency conflict between shareholders and professional managers has a detrimental impact on announcement period abnormal returns whereas the conflict between controlling and minority shareholders via control enhancing mechanisms does not. Finally, we document that founder CEO undertake better high tech M&A than descendant or hired CEO.     

Agency conflict in diversified business groups and performance of affiliated firms in India: Contingent effect of external constraint and internal governance

This study examines how diversification in Indian business groups creates multiple forms of agency problems and has performance implications for group-affiliated firms. Departing from prior literature which emphasizes the principal–principal agency conflict in business groups, we argue that business group diversification leads to dual agency problems between controlling and minority shareholders (principal–principal) and shareholders and managers (principal–agent) in affiliated firms. Both these agency problems arise in diversified business groups through cross-subsidization of affiliated firms by inefficient capital investment, continuing presence of affiliated firms in declining industries, tunneling of resources from profitable affiliated firms, lack of attention by business group headquarters to affiliated firms, and affiliated firm managers' sense of perceived security, which negatively impacts affiliated firms’ performance. These agency issues are reduced with the increase in product market competition from exposure to international markets and through concentrated promoter ownership in the affiliated firms. Our hypothesized model finds empirical support in a sample of 828 business group–affiliated firms in India.     

Zum Einfluss der Inhaberführung auf die Betriebsrat-Geschäftsführer-Beziehung – Eine theoretische und empirische Analyse in mittelständischen Unternehmen

This paper examines the quality of the relationship between business managements and works councils in small and medium-sized enterprises and strives for answering the question, which factors determine the quality. As ownership is an important determining factor of the establishment of works councils in small and medium-sized businesses, especially the impact of ownership on this relationship has been investigated. Agency theory and stewardship theory give hints that the owner management can have different impacts on this relationship. In order to test these contradictory hypotheses we have estimated a Heckman selection model to investigate which factors determine the quality of the relationship between business managements and works councils. Our results based on data generated from a survey in small and medium-sized enterprises conducted by the IfM Bonn in the years 2005 and 2006 indicate that ownership has a negative influence on the establishment of works councils, but a positive one on the quality of the relationship between business management and works council. Thus, the hypotheses predicting the existence of stewardship behaviour among owners and the existence of agency behaviour among managers can be confirmed.     

Diaspora Ownership and Homeland Firms' Internationalization

Although the contribution of diaspora to international business is becoming more evident, little is known about the channels used by individual firms to benefit from diaspora. In this paper, we propose equity ownership as a form of connection between the homeland firms and diasporans (i.e. diaspora members). Specifically, we draw on the literature on diaspora combined with an owners-as-resources perspective to theorize about how diaspora owners can affect the homeland firm's internationalization. We suggest that the anticipated entry costs deriving from the liability of foreignness faced by homeland firms explain how the impact of diaspora owners varies depending on entry mode. Finally, we compare diaspora owners to other types of foreign owner which we argue have lower levels of motivation and ability to help homeland firms to internationalize, and contribute relatively less to their internationalization than diaspora owners. We test and confirm our predictions using data on 2608 domestically controlled Indian firms and their internationalization in 2006–2012.     

When Financial Intermediaries are Corporate Owners: An Agency Model of Institutional Ownership

Increasingly, the equity investments of individual investors are being channeled through financial institutions. This article posits that the role of institutional owners as financial intermediaries, and the resulting complexity that institutions bring to ownership, distinguish institutional ownership from individual ownership. I develop a model of institutional ownership, referred to as the nexus agency model (NAM), which reflects this complexity. The model provides a framework for identifying the potential additional agency costs to beneficial owners that are associated with owning via financial institutions. The degree to which owning via institutions benefits individual owners depends on the adequacy of the legal and regulatory environment and governance mechanisms in protecting individual owners' interests. The applicability of the nexus model to different institutional owner types is then demonstrated in a discussion of U.S. public and private pension plans and mutual funds, leading to the generation of a NAM-based research agenda for each type and across the types. The article ends with discussion of the model's applicability to non-U.S. institutional environments.     

International diversification and the market value of new product introduction

Although previous studies on international diversification are plentiful, they mainly focus on the effect of international diversification on overall firm performance, and the results are mixed. This study extends this line of research and explores the impact of international diversification on new product performance. Specifically, we ask if international diversification explains the stock market reactions to new product introduction (NPI) announcements. We find an inverted-U-shaped relationship between international diversification and the announcement returns of NPIs, revealing that the market value of NPIs initially improves and then declines with increasing international diversification. The results also show that intangible assets, such as technological and marketing capabilities, positively moderate the relationship between international diversification and the market value of NPIs. Our study not only highlights the importance of considering both sides of international diversification in affecting investors' assessments of corporate new product strategies, but also shows the possibility of internal capabilities in changing the fixed relationship between international diversification and the market value of new products.     

PLATFORM OWNERSHIP

We develop a theoretical framework of trade on a platform on which buyers and sellers interact, and compare the impact of different platform ownership structures. If two‐sided network effects are strong, monopoly ownership induces more trade than dispersed ownership and is therefore socially preferable. Independent of the strength of network effects, monopoly ownership dominates a club‐like ownership structure where incumbent owners can exclude potential entrants. Under dispersed ownership, vertical integration tends to increase welfare as it allows the internalization of demand externalities. Allowing incumbent platform owners to exclude potential entrants hurts buyers but can raise welfare. (JEL: L10, D40)     

The impact of family CEO’s ownership and the moderating effect of the second largest owner in private family firms

This study explores two ownership issues in private family firms. First, we investigate the relationship between the ownership of family CEOs and firm performance, and postulate that this relationship in private family firms is more complex than the inverted “U” relationship found in public family firms. Second, we predict a potential moderating effect of the second largest owner, who may exert a monitoring role on family CEOs. We focus on private family firms as recent studies show that private family firms have distinct features compared to public family firms, and that findings documented in public family firms may not apply to the ubiquitous, but much less studied, private family firms. We have applied agency theory to develop the two hypotheses, used secondary data on a large sample of private family firms, utilized an adjusted conventional quadratic technique to test the hypotheses, and validated the findings using a second method of piecewise linear specification. The results show that the non-linear relationship between the ownership of family CEOs and firm performance is more complicated than the often-documented inverted “U” shape from public firms. Meanwhile, the second largest owner with a high enough ownership stake can impose a positive moderating effect by mitigating potential agency problems caused by family CEOs.     

International Diversification,Business Group Affiliation and Firm Performance: Empirical Evidence from India*

We investigate the impact of business group affiliation on the relationship between international diversification and firm performance for emerging economy firms. We develop the theoretical arguments based on an integration of the literature on international diversification with the institutional theory perspective. We argue for a U‐shaped relationship between international diversification and firm performance, and suggest that a firm's affiliation to a business group moderates the relationship between international diversification and firm performance. Based on a sample of Indian firms, we find that firm performance is positively related to the degree of internationalization, while business group affiliation reduces the positive effect of internationalization on firm performance.     

All the bottles in one basket? Evaluating the effect of intra-industry diversification on risk

This paper develops a framework using Monte Carlo simulation to examine risk/return properties of intra-industry product portfolio composition and diversification. We use product-level data covering all Swedish sales of alcoholic beverages to describe the risk profiles of wholesalers and how they are affected by actual and hypothetical changes to product portfolios. Using a large number of counterfactual portfolios we quantify the diversification benefits of different product portfolio compositions. In this market the most important reductions in variability come from focusing on domestic products and from focusing on product categories that have low variability. The number of products also has a large effect in the simulations, moving from a portfolio of 10 products to one of 20 products cuts standard deviation of cash flows in relation to mean cash flows by more than half. The concentration of import origins plays a minor quantitative role on risk/return profiles in this market.     

Twice as Smart? The Importance of Managers’ Formative‐Years’ International Experience for their International Orientation and Foreign Acquisition Decisions

This study examined how top management team's (TMT) international orientation influences perceptions of environmental uncertainty and how these perceptions impact international strategic decisions, in particular regarding ownership stakes taken in foreign acquisitions. We highlighted the need for the concept of TMT international orientation to encompass executives’ formative‐years’ international experiences along with their international career experiences and nationalities. Empirical tests based on a sample of 2122 international acquisitions completed by 561 UK firms over the period 1999–2008 showed that TMT international orientation positively moderated the negative impact of cultural differences and host country risk on acquisition ownership stakes. The results underscored the importance of considering decision‐makers’ attributes due to their experiences at a young age, beyond their demographic characteristics or professional experience, in the context of international strategic choices. We also discussed some implications of one of the possible consequences of executives’ formative international experience, namely biculturalism, for international business.     

中小企业的董事会结构与战略选择——基于中国企业的实证研究

本文从委托代理理论和资源依赖理论出发,以中国深圳证券市场中小企业板的上市公司为研究对象,探讨中小企业的董事会结构与战略选择的关系。研究结果表明,董事会结构对公司的多元化战略有着显著的影响,而与委托代理理论相比,资源依赖理论能够更好地解释这种影响。笔者认为,这是由于:中小企业规模较小,所有者对于公司经营管理的介入度比较高,所以委托代理问题并不明显;而缺乏资源则是制约众多中小企业多元化扩张的主要瓶颈。     

The Bind that Ties: Socioemotional Wealth Preservation in Family Firms

A growing body of research shows that family firms are different from other organizations in significant ways. In this paper we review this literature by examining how family firms differ from nonfamily firms along five broad categories of managerial decisions. These categories encompass a set of key organizational choices concerning management processes, firm strategies, corporate governance, stakeholder relations and business venturing. We argue that socioemotional wealth or affective endowment of family owners explain many of these choices. We also examine some contingency factors (namely family stage, firm size, firm hazard, and the presence of nonfamily shareholders) that moderate the influence of socioemotional wealth preservation as a point of reference when making managerial decisions in family firms. Lastly, we explore the firm performance consequences of family ownership.     

The impact of family owners’ monitoring on CEO turnover decisions and the role of trust

Even though there is clear evidence that large shareholders play an effective monitoring role over poorly-performing CEOs, the monitoring of family owners is yet quite unexplored. This study investigates the impact of family ownership on the CEO turnover-performance sensitivity, examining two potential factors that can affect the ability of the family owners in ensuring a prompt replacement of an underperforming CEO. First, we examine whether the monitoring of family owners is weakened by the existence of family ties with CEO. Second, we investigate whether the monitoring of family owners over professional CEOs is affected by the cultural propensity to trust or distrust a stranger. Our findings show that family owners are able to ensure a prompt replacement of an underperforming CEO only when the CEO is not a family member but rather an outside professional. Moreover, we find that the effectiveness of the family’s monitoring over professional CEO is weaker in environments characterized by the cultural propensity to distrust a stranger, rather than in contexts characterized by the cultural feeling to trust an outsider.