Empirical studies on ownership and performance: UVWXYZ

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

Walkling and Long [1984], Rand Journal of Economics

Find that managerial ownership is significantly higher in uncontested tender offers than in contested ones.

Ware [1975], Quarterly of Economics and Business

74 US firms in the food and beverage industry.

1960-70.

MC £5% single block of voting stock and no evidence of owner control.

OC ³15% of cohesive voting stock and board or management representation or ³25%.

Return on equity.

1) Firm size by assets. 2) Sub-industry by four-digit SIC classification.

Other dependents:

1) Net sales / #of employees. 2) Retained earnings / net income. 3) Debt / Assets.

Covariance analysis.

OC firms are significantly less profitable (weak) than MC firms with regard to return on equity. OC firms have significantly (weak) higher net sales / #of employees and retained earnings / net income. Other variables are insignificant.

The incentive alignment argument. Ware guess that the agency problem may be a large-firm problem rather than one of ownership.

Wru ck [1989], Journal of Financial Economics

128 private sales of equity. US firms. 65 by NYSE and 63 by AMEX. Dow Jones Information Retrieval Service Database.

1979-85.

1) Changes in ownership concentration (due to a private sale) in the ranges [0-5%], [5-25%], and [25-100%] using either board voting stock or combined voting stock by managers, directors and ³5% block holders. 2) Purchaser is management controlled or not. 3) Purchaser wants control or not.

Five-day cumulative abnormal return, CAR, by the selling firm over the interval (AD-4, AD) where AD is the announcement date. CAR is adjusted for value compensating the purchaser for his ownership’s influence on market value (Wruck develops a model to make the adjustment).

For the regression model based on changes in board voting stock Wruck uses the same control variables as Morck, Shleifer and Vishny [1988]. In other regressions no control variables are used.

Event-study of private sales of equity. OLS regression. Use piecewise linear regression.

Profitability is significantly increasing for changes in board voting stock in the [0-5%] range and significantly decreasing in the [5-25%] range. Considering the model using changes in combined voting stock by managers, directors and ³5% block holders, profitability is significantly decreasing in the [5-25%] range and significantly increasing in the [25-100%] range. If the purchaser wants control the profit decreases.

The incentive argument coupled with an entrenchment argument.

Yermack [1997], Journal of Finance

620 CEO stock option awards in 500 of the largest US firms (Fortune 500).

1992-94.

Stock option award.

149-day's cumulative abnormal return, CAR, by the bidding firm over the interval (AD-20, AD+120) where AD is the award date.

Some control by classified samples: 1) Awards on predictable times (i.e. awarding the same time each year).. 2) CEO is a member of the remuneration committee. 3) Value of option awards. 4) Timing relative to positive earnings announcement.

Event-study. The sample is classified in order to control for different things.

CAR increases significantly after the award of CEO stock options. CAR is lower for grants at predictable times. CAR is four times higher than average if the CEO is represented in the remuneration committee. Awards are more often made before good news announcements.

The insider-reward argument.

Zeckhauser and Pound [1990], in Asymmetric Information, Corporate Finance and Investment

286 large non-financial US firms.

1988-1989.

MC £15% of cohesive voting stock ownership.

OC ³15% of cohesive voting stock ownership.

Data from Value Line Investment Survey

Earnings / price ratio.

Asset-specificity by R&D / sales.

Other dependents:

1) Dividend payout by dividend / earnings. 2) Leverage by debt / debt plus market value of equity.

Standard t-tests are applied. The sample is classified in order to control for ‘asset specificity’.

Among firms with high asset-specificity OC firms have significantly lower E/P ratios than MC firms do. Firms with low asset specificity have no significant E/P difference. No significant difference in dividend or leverage between OC and MC.

The incentive alignment argument coupled with an argument about difficulty of monitoring firms with high asset specificity.

[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.