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Insider ownership, ownership concentration and investment performance: An international comparison

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  • Gugler, Klaus
  • Mueller, Dennis C.
  • Yurtoglu, B. Burcin

Abstract

This article makes two important contributions to the literature on the incentive effects of insider ownership. First, it presents a clean method for separating the positive wealth effect of insider ownership from the negative entrenchment effect, which can be applied to samples of companies from the US and any other country. Second, it measures the effects of insider ownership using a measure of firm performance, namely a marginal q, which ensures that the causal relationship estimated runs from ownership to performance. The article applies this method to a large sample of publicly listed firms from the Anglo-Saxon and Civil law traditions and confirms that managerial entrenchment has an unambiguous negative effect on firm performance as measured by both Tobin's (average) q and our marginal q, and that the wealth effect of insider ownership is unambiguously positive for both measures. We also test for the effects of ownership concentration for other categories of owners and find that while institutional ownership improves the performance in the USA, financial institutions have a negative impact in other Anglo-Saxon countries and in Europe.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 14 (2008)
Issue (Month): 5 (December)
Pages: 688-705

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Handle: RePEc:eee:corfin:v:14:y:2008:i:5:p:688-705

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Web page: http://www.elsevier.com/locate/jcorpfin

Related research

Keywords: Insider ownership Ownership structure Entrenchment and wealth effects Investment performance;

References

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Citations

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Cited by:
  1. Bjuggren, Per-Olof & Högberg, Andreas, 2012. "Legal Origin and Firm Size Effects Around the World," Ratio Working Papers 191, The Ratio Institute.
  2. Johan Eklund & Johanna Palmberg & Daniel Wiberg, 2013. "Inherited corporate control and returns on investment," Small Business Economics, Springer, vol. 41(2), pages 419-431, August.
  3. Thomas Poulsen, 2013. "Corporate control and underinvestment," Journal of Management and Governance, Springer, vol. 17(1), pages 131-155, February.
  4. Burns, Natasha & Kedia, Simi & Lipson, Marc, 2010. "Institutional ownership and monitoring: Evidence from financial misreporting," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 443-455, September.
  5. Klaus Gugler, 2013. "The determinants of rent extraction in the parent-subsidiary relation," Empirica, Springer, vol. 40(2), pages 343-362, May.
  6. Gugler, Klaus & Mueller, Dennis C. & Peev, Evgeni & Segalla, Esther, 2013. "Institutional determinants of domestic and foreign subsidiaries’ performance," International Review of Law and Economics, Elsevier, vol. 34(C), pages 88-96.

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