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Working Paper No. 71. Ownership Structure, Control and Firm Performance: The Effects of Vote Differentiated Shares

PublicationWorking paper
Ägarskap, Daniel Wiberg, Firm performance, Företagandets villkor, Investering, Johan Eklund, Marginal q, Per-Olof Bjuggren
Working paper No. 71
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Abstract

This paper contributes to the literature on ownership, control and performance by exploring these relationships for Swedish listed companies (1997-2002). We find that firms, on average, are making inferior investment decisions and that the use of dual-class shares have a negative effect on performance. According to our results concentration of ownership has a negative impact on investment performance and firm value when control instruments that separate votes from capital share are used. Marginal q is used as a measure of economic performance. It was presented in an article by Mueller and Reardon in 1993 and has recently been used in empirical studies of ownership and performance by among others Gugler and Yurtoglu (2003). Frequently Tobin’s q is used in studies of this type, but Tobin’s q has a number of disadvantages which can be circumvented by employing a marginal q. This study adds to earlier studies by investigating how the separation of vote and capital shares’ creates a wedge between the incentives and the ability to pursue value maximization. The relationships between the performance measure and different ownership characteristics like ownership concentration and foreign ownership are also investigated.

Related content: Ownership Structure, Control and Firm Performance

Bjuggren, P-O., Eklund, J. & Wiberg, D. (2005). Ownership Structure, Control and Firm Performance: The Effects of Vote Differentiated Shares. Ratio Working Paper No. 71.

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Working Paper No. 128. Institutional Ownership and the Returns on Investment
Working paperPublication
Bjuggren, P-O., Eklund, J. & Wiberg, D.
Publication year

2008

Published in

Ratio Working Paper

Abstract

By examining a large number of Swedish listed firms, we analyse how institutional and foreign owners affect investment performance. To measure investment performance Mueller and Reardon’s (1993) marginal q is used, although derived directly from Tobin’s average q. Marginal q measures the ratio of the return on investment to the cost of capital. Our findings show that both domestic and foreign institutional owners positively influence firm performance. Furthermore a non-linear relation between institutional ownership concentration and performance is found. This is consistent with positive incentive effects and negative entrenchment effects. 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. The practice of dual-class shares which separates cash-flow rights and control rights is also found to be an important determinant of firm performance that eradicates the positive influence of institutional ownership.

Working Paper No. 128. Institutional Ownership and the Returns on Investment
Working paperPublication
Bjuggren, P-O., Eklund, J. & Wiberg, D.
Publication year

2008

Published in

Ratio Working Paper

Abstract

By examining a large number of Swedish listed firms, we analyse how institutional and foreign owners affect investment performance. To measure investment performance Mueller and Reardon’s (1993) marginal q is used, although derived directly from Tobin’s average q. Marginal q measures the ratio of the return on investment to the cost of capital. Our findings show that both domestic and foreign institutional owners positively influence firm performance. Furthermore a non-linear relation between institutional ownership concentration and performance is found. This is consistent with positive incentive effects and negative entrenchment effects. 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. The practice of dual-class shares which separates cash-flow rights and control rights is also found to be an important determinant of firm performance that eradicates the positive influence of institutional ownership.

Working Paper No. 71. Ownership Structure, Control and Firm Performance: The Effects of Vote Differentiated Shares
Working paperPublication
Bjuggren, P-O., Eklund, J. & Wiberg, D.
Publication year

2005

Abstract

This paper contributes to the literature on ownership, control and performance by exploring these relationships for Swedish listed companies (1997-2002). We find that firms, on average, are making inferior investment decisions and that the use of dual-class shares have a negative effect on performance. According to our results concentration of ownership has a negative impact on investment performance and firm value when control instruments that separate votes from capital share are used. Marginal q is used as a measure of economic performance. It was presented in an article by Mueller and Reardon in 1993 and has recently been used in empirical studies of ownership and performance by among others Gugler and Yurtoglu (2003). Frequently Tobin’s q is used in studies of this type, but Tobin’s q has a number of disadvantages which can be circumvented by employing a marginal q. This study adds to earlier studies by investigating how the separation of vote and capital shares’ creates a wedge between the incentives and the ability to pursue value maximization. The relationships between the performance measure and different ownership characteristics like ownership concentration and foreign ownership are also investigated.

Related content: Ownership Structure, Control and Firm Performance

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