Examining a large number of Swedish listed firms, this paper analyses how institutional owners affects the investment decisions and firm performance. During the last decades the ownership structure of Swedish firms has undergone dramatic changes: institutional and foreign investors have been increasing their stakes, whereas Swedish households have decreased in importance. Controlling owners, often founding families, remain in control by resorting to an extensive use of dual-class shares. To measure investment performance Mueller and Reardon’s (1993) marginal q is used. Marginal q measures the ratio of the return on investments to the cost of capital. We find that institutional and foreign owners positively influence the performance of firms. Furthermore a non-liner relation between ownership concentration and performance is found. This is consistent with positive incentive effects and negative entrenchment effects. The practice of dual-class shares which separate cash-flow rights and control rights is also found to be an important determinant of firm performance.
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Length: 31 pages Date of creation: 06 Sep 2007 Date of revision: Handle: RePEc:hhs:cesisp:0096
Contact details of provider: Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden Phone: +46 8 790 95 63 Web page: http://www.infra.kth.se/cesis/ More information through EDIRC
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Find related papers by JEL classification: C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data G30 - Financial Economics - - Corporate Finance and Governance - - - General K22 - Law and Economics - - Regulation and Business Law - - - Corporation and Securities Law L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
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