Kinds of ownership structures in large firms

Exhibition: The theories on ownership and performance

Introduction: This table lists all the main theories about managerial ownership and financial performance. The following three items of information are provided: 1) Hypothesis and associated sign of derivative. 2) Underlying theory and possible sub-argument of hypothesis. 3) Implied causality and timing of hypothesis. It should also be noted that is notation for financial performance at time t+1 as expected at time t. For a review of the theories below see, Mathiesen [2002, Chapter 2]. Get dissertation.

Hypothesis and derivatives:

Theory or argument:

·     Sub-argument

Causality and timing:

Hypothesis 1:

Incentive alignment theory

Hypothesis 2:

General entrenchment argument

·     Impeding owner and creditor control

·     Impeding market for managerial labor

·     Impeding market for corporate control

·     Diminishing utility of profit maximization

Cost of capital argument

·     Less market liquidity

·     Poor portfolio diversification

Hypothesis 3:

for some Ow

for other Ow

Stulz's integrated theory

·    Takeover premium argument

·    Takeover entrenchment argument

Morck et al.'s combined argument

·     Incentive alignment argument

·     General entrenchment argument

Hypothesis 4:

Reward argument

Insider reward argument

Insider investment argument

Hypothesis 5:

or

Natural selection argument

Mutual neutralization arguments

·     Incentives v. entrenchment & cost of capital

·     Incentives v. free cash flows

·     Imperfect selection argument