Empirical studies on ownership and performance: EFG

Table: Empirical studies on ownership structure and performance [1]

Introduction: Want to find the empirical study by Demsetz and Lehn [1985]? Just click D below and move down alphabetically on the resulting web page. Note that this page is updated when new papers emerge. Also, a few studies have blank cells. This is temporary. They will eventually be completed.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Author(s)

&Journal

Sample & Period[2]

Ownership

variables(s)[3] [4]

Performance variable(s)

Other variable(s): Controls & dependents[5]

Statistical methods

Main results

Preferred explanation

Eckbo and Smith [1998], Journal of Finance

18,301 insider trades on Oslo Stock Exchange for 247 securities at 197 firms.

1985-92.

Insiders are top-officers and directors, the firm's auditor and investment advisor, and close family members of these.

1) AMAR1, average monthly abnormal return using equal weighted CAPM. 2) AMAR2, using conditional multifactor model with value weights. 3) AMAR3, using conditional multifactor model with ownership weights.

AMAR2 and 3 adjusts abnormal returns for: 1) Return spread between Norwegian interbank rate and change in world stock index. 2) Real Norwegian interbank rate. 3) Interest spread between interbank rate and ten-year government bonds. 4) [1)] lagged one period. 5) World stock dividend less Norwegian interbank rate, lagged one period. 6) [2] lagged one period. 7) Dummy for month of January.

Event / portfolio-study. Compare various measures of AMAR on various definitions of insider portfolios.

AMAR1 produce conflicting evidence on insider earnings. AMAR2 and 3 does not produce any significant evidence on insider trading. No systematic evidence on insider profits could be found on insider portfolios sorted after: 1) Size of trades. 2) % size of insider ownership. 3) Value of insider ownership. Finally, insider portfolios are found unable to outperform mutual funds.

The insider-investment argument coupled with an entrenchment argument.

Elliot [1972], Journal of Financial and Quantitative Analysis

88 firms of 840 firms from S&P's Compustat Data.

1964-67.

MC £5% single block of voting control.

OC ³10% and evidence of active control, or, ³20%.

1) Change in sales. 2) Change in assets. 3) Dividends. 4) Return on stocks. 5) Profits. 6) Return on equity. 7) Growth in spending.

No control variables but other variables include: 1) Stock of liquid assets. 2) Cash flow. 3) Debt/Equity. 4) Non-equity financed assets. 5) Discretionary income. 6) Capital expenditure/ Net plant assets. 7) Size by sales. 8) Growth in sales.

Variance analysis.

No significant effects between OC and MC except with regard to change in cash flow.

The incentive argument.

Finnerty [1976], Journal of Finance

Find that managers make abnormal returns when trading in their firm's stock.

The insider-investment argument.

Friend and Lang [1988], Journal of Finance

984 NYSE firms.

1979-83.

None.

Support for a substitution hypothesis between debt, managerial ownership and external ownership. Debt ratio decreases significantly for higher managerial ownership and it increases significantly for more concentrated external ownership.

Givoli and Palmon [1985], Journal of Business

Find that insiders make abnormal return on their trading but that this return does not appear to be related to news other than information about insider trading.

Gupta and Rosenthal [1991], Financial Management

26 recapitalizations.

1984-88.

Event study.

Find that the abnormal returns of a leveraged recapitalization increases marginally (10% level) with changes in managerial ownership and increases significantly with the level of distributable cash flow.

[1] Some of the studies have investigated other issues as well, such as, the relation between ownership structure and the risk of the firm’s performance.

[2] The reported period typically refers to the maximum period that a particular study applies. Often the performance variables are collected over the entire period, whereas the ownership variables and control variables are collected at one year in the investigated period. All studies use publicly traded firms (unless otherwise described), because they are easier to get information about.

[3] Abbreviations: Management control (MC); Ownership control (OC); Owner managed (OM); External control (EC); Strong owner control (SOC); Weak owner control (WOC); All owner control (AOC); Financial control (FC); Majority held (MH); Diffusely held (DH).

[4] The ownership variable is typically measured as concentration of ownership on a particular set of owners, e.g. ownership by managers or institutional investors.

[5] This colon includes 1) independent control variables, 2) dependent variables that are not performance or ownership variables, and 3) variables used for sample classification.