Ownership Concentration and Firm Performance: Evidence from an Emerging Market
27 Pages Posted: 17 Aug 2006
Date Written: June 2006
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 up to 2003. The ownership structure of these companies becomes more dispersed with the number of years of listing. The results give support to the hypothesis that firms belonging to the sector of high technology have lower ownership concentration than firms in more 'mature' industries. The positive impact of ownership concentration on firm value detected in OLS regressions becomes even stronger when we control for the endogeneity of ownership.
Keywords: Ownership structure, corporate governance, firm behaviour, uncertainty, knowledge
JEL Classification: D21, G32, O16, P2, P34
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