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Ownership structure and market efficiency

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  • Nakabayashi, Masaki

Abstract

We present a framework to analyze the impact of ownership structure on stockholder/manager conflicts. We first predict that, in an inefficient market, investors motivate managers to pursue a higher return on equity instead of a higher return on asset, and that this focus on short-term performance leads to leverage distortion. Using a sample of late nineteenth- to early twentieth-century Japanese firms, we show that mediocre performing firms boosted the return on equity by bond flotation, and a higher president-ownership concentration raised the return on asset and controlled bond leverage. Thus, president-ownership concentration offsets market inefficiency.

Suggested Citation

  • Nakabayashi, Masaki, 2019. "Ownership structure and market efficiency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 61(C), pages 189-212.
  • Handle: RePEc:eee:intfin:v:61:y:2019:i:c:p:189-212
    DOI: 10.1016/j.intfin.2019.03.003
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    More about this item

    Keywords

    Stockholder/manager conflicts; Multitask moral hazard; Ownership structure; Financial leverage; Self-fulfilling distortion; Skewness-adjusted variation coefficient;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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