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Investor Protections and Concentrated Ownership: Assessing Corporate Control Mechanisms in the Netherlands

  • Robert S. Chirinko
  • Hans van Ees
  • Harry Garretsen
  • Elmer Sterken

The Berle-Means problem - information and incentive asymmetries disrupting relations between knowledgeable managers and remote investors - has remained a durable issue engaging researchers since the 1930's. However, the Berle-Means paradigm - widely-dispersed, helpless investors facing strong, entrenched managers - is under stress in the wake of the cross-country evidence presented by La Porta, Lopez-de-Silanes, Shleifer, and Vishny and their legal approach to corporate control. This paper continues to investigate the roles of investor protections and concentrated ownership by examining firm behaviour in the Netherlands. Our within country analysis generates two key results. First, the role of investor protections emphasized in the legal approach is not sustained. Rather, we find that performance is enhanced when the firm is freed of equity market constraints, a result that we attribute to the relaxation of the myopia constraints imposed by relatively uninformed investors. Second, ownership concentration does not have a discernible impact on firm performance, which may reflect large shareholders' dual role in lowering the costs of managerial agency problems but raising the agency costs of expropriation.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 864.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_864
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  1. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
  2. Andrei Shleifer & Robert W. Vishny, 1995. "A Survey of Corporate Governance," Harvard Institute of Economic Research Working Papers 1741, Harvard - Institute of Economic Research.
  3. Jeremy S. S. Edwards & Alfons J. Weichenrieder, 2004. "Ownership Concentration and Share Valuation," German Economic Review, Verein für Socialpolitik, vol. 5(2), pages 143-171, 05.
  4. William J. Carney, 1997. "Large Bank Stockholders In Germany: Saviors Or Substitutes?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(4), pages 74-82.
  5. Marco Becht & Fabrizio Barca, 2001. "The control of corporate Europe," ULB Institutional Repository 2013/13302, ULB -- Universite Libre de Bruxelles.
  6. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 1998. "Corporate Ownership Around the World," Harvard Institute of Economic Research Working Papers 1840, Harvard - Institute of Economic Research.
  7. Michael E. Porter, 1992. "Capital Choices: Changing The Way America Invests In Industry," Journal of Applied Corporate Finance, Morgan Stanley, vol. 5(2), pages 4-16.
  8. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  9. Kaplan, Steven N, 1994. "Top Executive Rewards and Firm Performance: A Comparison of Japan and the United States," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 510-46, June.
  10. George Gelauff & Corina den Broeder, 1997. "Governance of stakeholder relationships: The German and Dutch experience," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  11. repec:oup:qjecon:v:112:y:1997:i:3:p:693-728 is not listed on IDEAS
  12. Kabir, M.R. & de Jong, A. & Marra, T.A. & Röell, A.A., 2001. "Ownership and control in the Netherlands," Other publications TiSEM 67a9b6d3-f632-4853-a53d-f, Tilburg University, School of Economics and Management.
  13. Mark J. Roe, 1997. "The Political Roots Of American Corporate Finance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(4), pages 8-22.
  14. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Trust in Large Organizations," NBER Working Papers 5864, National Bureau of Economic Research, Inc.
  15. Erik Bohlin, 1997. "A Survey of Managerial Incentives and Investment Bias - Common Structure but Differing Assumptions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(2), pages 197-248.
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