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Ownership concentration & firm performance: Evidence from an emerging market

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  • Irena Grosfeld

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Abstract

The initial view of the advantages of ownership concentration in joint stock companies was determined by the concern about the opportunistic managerial behavior. The growing importance of knowledge and human capital in the operation of firms shifts the focus of concern: excessive ownership concentration may stifle managerial initiative. This may be particularly true, and the results obtained in this paper support this hypothesis, in firms with high share of knowledge related activities. I explore the determinants of ownership concentration and the relationship between ownership structure and firm value in the context of a transition economy, i.e. an economy undergoing important changes in its legal and regulatory framework, in macroeconomic policy and most of all, in its property rights allocation. I focus on all non-financial companies traded on the Warsaw Stock Exchange since its inception in 1991 and up to 2003. We can observe that ownership of companies becomes more dispersed with the number of years of listing. The results reported in this paper suggest that firm adjust their ownership structure to firm specific characteristics and that firms belonging to the sector of high technology tend to have lower ownership concentration. However, the positive impact of ownership concentration on firm value detected in OLS regressions becomes even stronger when we control for the endogeneity of ownership.

Suggested Citation

  • Irena Grosfeld, 2006. "Ownership concentration & firm performance: Evidence from an emerging market," William Davidson Institute Working Papers Series wp834, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2006-834
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    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/57214/1/wp834.pdf
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    References listed on IDEAS

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    Cited by:

    1. Ahsan Akbar, 2015. "The role of corporate governance mechanism in optimizing firm performance: A conceptual model for corporate sector of Pakistan," Journal of Asian Business Strategy, Asian Economic and Social Society, vol. 5(6), pages 109-115, June.

    More about this item

    Keywords

    Ownership structure; corporate governance; firm behaviour; uncertainty; knowledge economy;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • P2 - Economic Systems - - Socialist Systems and Transition Economies
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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