This paper exploits several unique institutional features in the Dutch system of corporate control to examine the relations among investor protections, concentrated ownership, and firm performance. Four conclusions emerge. First, controlling shareholders do not appear to ameliorate corporate governance problems to any great extent. Second, the identity of ownership matters; when a firm is controlled by a few large individual shareholders, firm performance suffers. Expropriation costs are very high for this type of investor. Third, and somewhat at odds with the bulk of the prevailing literature, performance is enhanced when the firm is freed of equity market constraints. These results are consistent with recent theoretical models emphasizing that too much oversight can be detrimental to performance by forcing firms to underinvest in physical or human capital. Fourth, we distinguish between voting rights providing the means for intervening in firm affairs and cash flow rights providing the required motivation. Considering both rights are important for the empirical results. Apart from its substantive contributions, the paper develops a new four-step estimation strategy to control for the reverse causation problem plaguing econometric studies of corporate control mechanisms and firm performance.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by University of Groningen, CCSO Centre for Economic Research in its series CCSO Working Papers with number
200309.
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)