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Disproportionate insider control and firm performance

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  • Barry Hettler
  • Arno Forst

Abstract

The effect of disproportionate insider control on firm performance is ambiguous. Disproportionate control may enhance insiders’ ability to expropriate perquisites; on the other hand, it may provide stability of management and reduce short‐term market pressures. Using a hand‐collected sample of U.S. dual‐class firms, we find that disproportionate control is positively associated with accounting‐based performance, but negatively associated with Tobin's Q. These results are consistent with the incentives of entrenched insiders who are interested in profitability but less beholden to capital markets.

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  • Barry Hettler & Arno Forst, 2019. "Disproportionate insider control and firm performance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(2), pages 1101-1130, June.
    • Handle: RePEc:bla:acctfi:v:59:y:2019:i:2:p:1101-1130
    DOI: 10.1111/acfi.12279
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