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Corporate ownership structure and performance in Europe

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  • Jeremy Grant
  • Thomas Kirchmaier
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    Abstract

    In this paper, we show that ownership structures vary considerably across Europe, and that the dominant form of ownership is not necessarily the most efficient one. These findings are in contradiction to similar research based on US samples. The results also demonstrate that firms without a dominant shareholder tend to outperform their country peer groups. We base our analysis on a new and unique dataset of uniform ownership data of the largest 100 firms in the five major European economies. We quantify the differences in ownership by comparing three distinct ownership structures of firms and relating them to performance. For the first time we employ a Hodrick-Prescott Filter, a methodology widely used in macroeconomics to isolate the trend growth components from cyclical fluctuations, to estimate the share price trend of each firm. We take this trend as a good indirect indicator of the quality of governance.

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    File URL: http://eprints.lse.ac.uk/19960/
    File Function: Open access version.
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    Bibliographic Info

    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 19960.

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    Length: 29 pages
    Date of creation: Apr 2004
    Date of revision:
    Handle: RePEc:ehl:lserod:19960

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    Related research

    Keywords: Corporate governance; ownership structures; performance; Europe;

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    References

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    1. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June.
    2. Acemoglu, Daron & Robinson, James A, 1999. "Democratization or Repression?," CEPR Discussion Papers 2278, C.E.P.R. Discussion Papers.
    3. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
    4. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
    5. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
    6. Sanford J. Grossman & Oliver D. Hart, 1987. "One Share/One Vote and the Market for Corporate Control," NBER Working Papers 2347, National Bureau of Economic Research, Inc.
    7. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Legal Determinants of External Finance," Working Paper 19443, Harvard University OpenScholar.
    8. Stoll, Hans R. & Whaley, Robert E., 1983. "Transaction costs and the small firm effect," Journal of Financial Economics, Elsevier, vol. 12(1), pages 57-79, June.
    9. Lucian Arye Bebchuk, 1999. "A Rent-Protection Theory of Corporate Ownership and Control," NBER Working Papers 7203, National Bureau of Economic Research, Inc.
    10. Bengt Holmstrom & Steven N. Kaplan, 2001. "Corporate Governance and Merger Activity in the United States: Making Sense of the 1980s and 1990s," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 121-144, Spring.
    11. King, R.G. & Rebelo, S.T., 1989. "Low Frequency Filtering And Real Business Cycles," RCER Working Papers 205, University of Rochester - Center for Economic Research (RCER).
    12. Demsetz, Harold & Villalonga, Belen, 2001. "Ownership structure and corporate performance," Journal of Corporate Finance, Elsevier, vol. 7(3), pages 209-233, September.
    13. Roll, Richard, 1983. "On computing mean returns and the small firm premium," Journal of Financial Economics, Elsevier, vol. 12(3), pages 371-386, November.
    14. Marco Becht & Fabrizio Barca, 2001. "The control of corporate Europe," ULB Institutional Repository 2013/13302, ULB -- Universite Libre de Bruxelles.
    15. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
    16. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December.
    17. Edlin, Aaron S & Stiglitz, Joseph E, 1995. "Discouraging Rivals: Managerial Rent-Seeking and Economic Inefficiencies," American Economic Review, American Economic Association, vol. 85(5), pages 1301-12, December.
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