The effects of ownership structure on various performance
variables: evidence from south European firms
Wilco Dwarswaard
Abstract This thesis investigates whether the ownership structures of south European firms
have significant effect on four performance variables: valuation, return on investment,
growth and risk. By using the degree of control of the largest shareholder, the divergence of
voting right from capital right and the degree of control of the second and third largest
shareholder, the ownership structure of the sample companies is defined. After gathering
the performance values for the years 2003-2007, multiple regression analysis found proof
for both significant positive and negative effects of ownership structure on firm
performance.
Table of contents
1 – Introduction and research question 3
2 – Literature review 5
2.1 – Principal agent theory
2.2 – Ownership concentration and corporate firm performance 2.3 – Owner identity and firm performance
2.4 – National effects on ownership structures
2.5 – Ownership concentration in south European countries 2.6 – Divergence of capital right from voting right
2.7 – Ownership identities in south European countries
3 – Methodology 17
3.1 – Performance measurements 3.2 – Ownership structure
4 – Research method 21
4.1 – Performance variable
4.2 – Ownership structure variables and hypotheses 4.3 – Control variables
4.4 – Data selection and sample restrictions
5 – Results 25
5.1 – Simple statistics 5.2 – Regression analysis
6 – Discussion 36
7 – Conclusion, limitations and further research 38 7.1 – Conclusion
7.2 – Limitations and further research
1 – Introduction and research question
Through time, many papers have been written concerning corporate ownership structures in relation to firm performance. The discussion on this topic dates from the late 1770’s. In 1776, Adam Smith already argued that a variety of ownership structures have different levels of efficiency. For example, according to Smith joint-stock companies do not have the same efficiency as private companies. The main argument for this statement is that top management of the former ownership structure would give more priority to their own interests than the latter structure.
The ownership structure of a firm is leading in its behavior and performance. Various literature assumes a relationship between the ownership structures of a firm and firm performance. Also, ownership concentration is assumed to influence this variable. However, these studies are not in conformity with each other. For example, Hilger and Weis (2012), Burkart, Gromb and Panunzi (1997) and Agrawal (1996) found in their study’s a positive relationship between concentration of ownership and performance of the firm. In contrast, Fama and Jensen (1985) and Heugens, van Essen and Oosterhout (2008) found a negative relationship between ownership concentration and firm performance. Other literature explored various ultimate ownership identities in relation to the performance of a firm. Here, outcomes are also not in conformity with each other. James (1999), Kim and Gao (2013), Ward (1997) and Uhlaner (2013) found a positive relationship between families as ultimate shareholders of a firm and performance. However, Fama and Jensen (1985), Chua and Litz (2004) and Dyer (2006) found the relation between family ownership and firm performance to be negative. Sleifer and Vishny (1998) and Lee (2003) found a positive relationship between a state as ultimate shareholder of a company and firm performance, while Najid and Rahman (2011), Hart and Moore (1997) and Eng and Mak (2003) found this relationship to be negative. Also, research on the relationship between institutional ownership and firm performance has led to contrasting results (Ping and Wing (2007), Bertrand and Mullainathan (2000)).
Research in the above mentioned area is led by Corporate Governance Theory (CGT) (bron). CGT introduces the problems between the various stakeholders inside the company. Problems between stakeholders are of all times, and prove that the question about the most effective ownership structure is still current.
a solid overview of the ownership structures of firms originating from these countries, this research uses three sub-questions to answer the main question:
- What are the effects of ownership structure of south European firms on valuation, profitability, growth and risk?
To come to a conclusive answer on this question, three sub-questions are formulated:
- What is the effect of ownership concentration on the performance of south European firms? - What is the effect of divergence with respect to voting right and capital right on the
performance of south European firms?
- Does the degree of control of the second and third largest shareholder have effect on the performance of south European firms?
2 – Literature review
The literature review of this thesis will review various studies that examine (non-) relationships between performance of a firm and its ownership structure, and is divided in three parts. First, the author will introduce Corporate Governance Theory (CGT). Principal-agent problems including agent costs are discussed in this section. Also, the relevance in relation to the topic is explained. The second part will discuss various literature specific to the topic. Studies that discuss ownership identity in relation to firm performance and ownership concentration in relation to firm performance are subject of discussion.
2.1 – Principal Agent Theory
The principal agent problems may exist in a relationship between an employer (principal) and employee (agent) or between an organization (principal) outsourcing a contract to another firm (agent). In these relationships, conflicts may arise due to a difference in interests. By starting a contract relationship, a principal offers the agent certain incentives to execute the contract. However, due to differences in incentives to execute the contract, opportunistic behavior from the agent may exist. Also, lack of proper information and various external disturbances might prevent the principal in monitoring the agent’s actions in an adequate way. Agency problems may also appear between multiple principals in a firm, where one manager may pursue other benefits than the other. A principal may protect himself from opportunistic behavior by designing sufficient remuneration plans for the agent (Jensen & Meckling, 1976). Although it is hard to exactly calculate the costs that agency problems bring into a firm, it may be clear that these costs are substantial. In the next section, three common agency problems will be discussed in more detail: Adverse selection, hold-up and moral hazard.
Adverse selection
Adverse selection exists ex ante a contractual relationship between principal and agent (Jullien, 2000). Here, an agent has the opportunity to provide the principal with wrong information about him- or herself, for example by providing the principal with falsified results from past transactions. Adverse selection occurs when the principal is not able to observe previous results of the agent before they enter in a contract.
Often, buyers cannot distinguish products that have a more than average quality from products with a below the average quality. Therefore, products with a higher than average quality will not be sold since buyers offer a price for a product with average quality. The result of this systematic is that product with an above average quality will not het sold, and buyers pay an average price for products with a below average quality.
As principals search for agents, a similar systematic can occur. Because the principal is in this case the ‘buyer’, he does not have full information on the quality of the ‘product’, in this case the agent. Therefore, the principal will offer a price based on an average qualified agent. Agents who are qualified above average will not accept the offer. Below average qualified agents will accept the offer and will be overpaid. The result of the above described systematic is that principals pay an average price for an underqualified agent.
A possible solution for adverse selection can be found in providing the buyer, in this case the principal in search for an agent, with a safeguard. In case of a product, the seller can include some sort of guarantee, for example a new computer when it fails to work. In case of a principal-agent relationship, this safeguard could be included in a legal contract between the two parties (Abbring, 2005). Although detailed legal contracts may decrease the risk of opportunistic behavior from the agent, it is complicated to let it disappear. Therefore, the adverse selection problem is still actual. The Hold-up problem
Another well-known agency problem is the hold-up problem. Here, an opportunity to cooperate in terms of a transaction relationship is available, but not executed. The transaction is ‘held-up’ because of mutual expectations of opportunistic behavior: often one of the parties has to invest, after which they expect the other party to gain bargaining power. Hold-up can only exist when three conditions are present: (1) the before mentioned investment by one of the parties should be specific to the transaction, (2) the legal contract that governs the transaction between principal and agent must be incomplete; e.g. the time lap of the transaction is not included in the contract and (3) one of the parties must find it profitable to engage in a hold-up (Klein, 1998). The second condition suggest that creating a hundred percent ‘water-proof’ contract, in which all contingencies of the transaction are accounted for, is the sole solution of this problem. However, contracts are not always honored, and it is extremely difficult to design contracts in which both ex ante and ex post contingencies that may occur are included.
problem may be found in the corporate governance. To prevent two parties from acting opportunistically, it might be considered to change the structure of the transaction relationship, e.g. by combining both parties in one unit (Klein, 1998).
Moral Hazard
Another common agency problem is moral hazard, in which the principal and agent in the transaction relationship after completion of the contract are led by different incentives (Mirrlees, 1999). Moral hazard can only exist after completion of the contract. The main issue in moral hazard is not only the asymmetry in information which has influence on the principal’s ability to adequately monitor the agent. The principal is also not able to adequately monitor the outcome of the transactions, due to various factors (Jensen and Meckling, 1976).
Jensen and Meckling (1976) have also mentioned the moral hazard problem within a firm. In this situation, managers (agents) act opportunistically versus the shareholders (principals) of the firm. Here, due to information asymmetry and different incentives, management will pursue own interest, and lack focus on that of shareholders. An example of such opportunistic behavior might be a merger in which management gains control, but where no advantages for shareholder can be identified (La Porta et al. 1997).
Former studies have identified multiple solutions to reduce transaction costs related to agency problems. For example, extensive monitoring activities may reduce information asymmetry (Balakrishnan and Fox, 1993). Also, entering in trust-building relationships is known as a way to refrain parties from acting opportunistic (Agrawal and Knoeber, 1996). It may be clear that extensive monitoring activities, building trustworthy relationships and other constructions to reduce transaction costs come at a price themselves. In CGT, these costs are referred to as ‘agency costs’. While reducing opportunistic behavior, it is a challenge for parties to bring these costs to a minimum (Singh and Davidson, 2003).
Ownership structure has been proven to be an important aspect as a means of reducing agency costs. For example, high ownership concentration is associated with an increased ability of the shareholder(s) to adequately monitor the agents in the transaction relationship (Burkart and Panunzi, 2006). Providing agent with a remuneration package including shares is also thought to decrease agency costs, while incentives of both principals and agents will become more aligned (Pagano and Roell, 1998).
2.2 – Ownership concentration and corporate firm performance
Various papers (Berle and Means (1932), Demsetz and Lehn (1985) Hilger and Weis (2012), Gromb and Panunzi (1997)) have investigated the possible relationship between ownership concentration and corporate firm performance.
The discussion regarding a possible relationship between the concentration of ownership and corporate firm performance dates back to the 1930’s. In their book, ‘The Modern Corporation and Private Property’ (1932), Adolf Berle and Gardiner Means argued that legal owners of the company were getting dispersed of their control, because they were not interested in every-day operations of the firm. This made making decisions in the best interest of the firm easier to make for management. Many studies have found a positive relationship between ownership concentration and corporate firm performance, often measured by profitability and valuation. These studies use various explanations. Hilger and Weis (2012) argue that large shareholders have large stakes. Therefore, shareholders have greater incentives to use their control rights to make decisions that enhance firm performance. This concept is defined as incentive alignment. Burkart, Gromb and Panunzi (1997) argue that concentrated ownership induces high levels of adequate monitoring and control, which should increase the overall firm performance. They do stress that concentrated ownership only results in higher firm performance when shareholders have incentives to execute their control rights and make decisions that enhance firm performance. While Shleifer and Vishny (1986) mention that concentrated ownership can reduce the so-called ‘free-rider’ problem in takeovers, Burkhart (1995) argues that large shareholders can drive up the premium that a buyer has to pay when taking over a firm.
Another stream of literature focus on markets which are underdeveloped. Heugens et al. (2009) argue that concentrated ownership can function as a substitute for lacking governance in an underdeveloped economy. Concentrated ownership also can help firms in an economic weak period, by large shareholders allocating their abundant resources to the firm. These can help the firm overcome weak performance in that period. Finally, large shareholders are thought to provide managers with knowledge gained in previous business, in order to increase their capabilities.
weak economic periods, when large shareholders need as much resources as possible to pay off. Burkhart et al. (1997) recognized a phenomenon referred to as ‘over-monitoring’. Here, managers get discouraged because of large control of shareholders. Another argument to expect a negative effect is related to assumed ‘private benefits’ that large shareholders gain. Various scholars found that high control leads to opportunistic behavior of the large shareholder, decreasing performance of the firm (Burkart, 1997).
In contrast to the above mentioned literature, other studies did not find an effect of ownership concentration on firm performance. Becker (1962) explains this by means of the ‘natural selection’ argument, where different ownership structures do not influence performance because inefficient forms of ownership will be eliminated by means of markets. Here, the form of ownership depends on the market and its environment. Bahng (2004) explains the non-existence of an effect of ownership structure on firm performance by means of ‘mutual neutralization’. Possible effects of various amounts of ownership concentration, both positive and negative, would offset each other and eventually lead to neutralization.
Although previous literature found results in multiple directions, this study follows the direction of the most found results, which assumes that ownership concentration has a positive effect on various performance indicators:
Hypothesis 1a,b,c : Ownership concentration is positively related to Tobin’s Q, ROE and growth.
According to Jagannathan and Wang (1996), firms with large shareholders tend be more careful in their investments, and tend to realize lower returns. Therefore, this study assumes that the concentration of ownership within a firm has a negative effect on risk:
Hypothesis 1d : Ownership concentration is negatively related to Beta
According to Hilger and Weis (2012), two (or more) large shareholders behind the largest shareholder can have a positive effect on firm performance. Large shareholders are able to monitor the ultimate shareholder and prevent him from acting opportunistically. This variable is expected to have a positive relationship with the performance variables, therefore:
Hypothesis 2a,b,c : Degree of control of the second and third largest shareholder is positively related to Tobin’s Q, ROI and growth.
With respect to risk, the same argument is valid as with hypothesis 1d:
2. 3 – Owner identity and firm performance
The idea that different ownership structures have effect on firm performance is based on the identification of goals that an owner might have. These goals that an owner pursues might influence the firm’s performance.
Here, it is worth explaining when a firm is said to have a certain ‘ownership identity’. La Porta, Lopez de Silanes and Shleifer (2007) mention a shareholder to be ‘ultimate’ when the amounts of shares possessed in the firm exceed 20%. This is a threshold often used in this area of research, while 20% is thought to be enough to have effective control over a firm. Thus, for example a firm is family owned when the family’s amount of shares in the firm exceed 20%.
Family Ownership
Family ownership is one of the most common ownership structures across the globe (Uhlaner, 2005). Through time, family ownership and its effect on firm performance has been researched in different perspectives, among which the time-laps perspective (Kim and Gao, 2013 and Ward, 1997), and the incentive alignment perspective (James, 1999 and Anderson and Reeb, 2003).
In a family owned firm, family members often have multiple tasks. They are not only owner, but also occupy seats in the board of directors. Ben-Amar and André (2006) found that 54.2% of CEO’s in Canadian firms were indeed a member of the family.
One explanation of a positive effect of family ownership on firm performance is loyalty. Family members are proud on what they have achieved through time. This makes them loyal and trustworthy to the firm. This results in fewer misalignments in interests and in more efficiency (James, 1999). Other research (Kim and Gao, 2013 and Uhlaner, 2005) argue that family longevity goals have a positive effect on firm performance. While short-term profit is often the focus of other ownership identities, families tend to focus on long term competitive advantages, which eventually lead to an increase in firm performance.
interests between these groups. This results in family managers pursuing their individual interests. This could decrease firm performance. Not only conflicts within the family but also conflicts between the family and minority shareholders can have a negative effect on performance. This argument is referred to as ‘private control benefits’ (Chua and Litz, 2004) and increases along with the increase in family control. Finally, family ownership can decrease firm performance as non-family managers feeling discouraged in improving firm efficiency when additional family-managers are brought in the company.
State Ownership
Although many country’s within Europe followed privatization programs after the 1970’s, there is still a significant amount of large companies owned by governments (Djankov and Murrel, 2002), which can mostly be found in eastern European countries. Again in this ownership structure, both positive and negative effects on firm performance have been identified.
Shleifer and Vishney (1998) argue that state ownership can have a positive effect on firm performance, while governments can give firms a ‘helping hand’. This can be done by providing financial resources, but also by the formation of market entry regulations, taxation rules that favor governmental-owned firms and easy loan regulations for these firms (Gordon and Lee, 2003). Another argument in favor of state ownership increasing firm performance is the incentive for government to closely monitor the firm. By doing so, agency costs will decrease, increasing performance (Bos, 1991 and Le & Buck, 2011). Government ownership is also assumed to provide a solution for market failures. In the case of large social costs (costs for society because of e.g. monopoly power of a firm), governments can decrease these costs and restore purchasing power (Atkinson and Stiglitz, 1976). A final argument in favor of a positive effect is that firms do not have a very strict compliance to various rules, for example accounting standards. Here, firms may choose accounting structures that increase firm performance (Aljifri and Moustafa, 2007).
the performance of state-owned firms, while governments differ in various factors. For example, in African countries governments tend to act more opportunistically than western European governments do. This will lead to a decrease in performance.
Institutional Ownership
Between 1956 and 1997, European equity held by institutions increased from 6% to 43%. Institutions are often divided in financials versus non-financials. However, this distinction will not be made in this research.
Among others, Ping and Wing (2011) argue that institutional investors can improve firm performance. They have the incentive to both discipline and monitor corporate managers to make sure that they act in the best interest of the firm and make any effort to increase the firm’s performance (Ping and Wing, 2011). Various scholar (e.g. Rose 2007) found that institutional owners monitor management in a more extensive way than general shareholders. Shleifer and Vishny (1997) add to this argument that they have more knowledge with respect to competition, the industry the firm is active in and capital markets. It should be noted that this additional knowledge only leads to an increase in firm performance when the institutional owners engage in active ownership. The capabilities of institutional shareholders with respect to decision making and action taking are assumed to be higher than those of average shareholders and therefore expected to increase the firm’s performance (Tsai and Gu, 2007). A positive effect may also be found due to complementary resources firms possess. By holding shares in each other’s company, the gain easy access to these resources (Ghemawat and Khanna, 1998). Finally, institutional owners located abroad can provide easy access to international markets. This can result in growing business and increasing performance (Kester, 1992).
Other scholars argue that institutional ownership is negatively related to firm performance. Bertrand (2002) found that institutional investors extract wealth from the owned firm, by engaging in transactions that are only in favor of the institution, decreasing the owned firm’s performance. Hand (1990) identifies ‘institutional myopia’, where institutional shareholders influence management to focus on short term gains.
Dispersed ownership
are identifies as ‘dispersedly owned’. In this research, this threshold is followed. In dispersedly owned firms management is thought to have control over the firm. Often, managers own a substantial amount of shares that allow them to have control over part of the operations over the firm, and also provide them with enough incentive to not act opportunistically.
Previous literature has identified multiple arguments for both positive as negative effects of dispersed ownership on the performance of a firm. A positive effect has already been identified by Jensen and Meckling (1976), who argued that managers that also own a portion of shares align the incentives of management and shareholders. Therefore, there is less need for extensive monitoring by the shareholders. Ultimately, the alignment of incentives will decrease the costs related to agency problems.
Other scholars (e.g. Chang, 2007) identified negative effects of dispersed ownership on firm performance. The ‘hold-up problem’ is here the main argument, as shareholders do recognize opportunistic behavior of management but can’t prevent it or undertake actions against it. In this situation, management may undertake opportunistic actions that decrease the value of the firm. The combined positive incentive alignment effect and the negative ‘hold-up’ effects may result in a non-linear effect of dispersed ownership on firm performance. When the degree of dispersion is low, the positive effects outweigh the negative effects. When the degree of dispersion is high, and management has relatively high control, the negative effects outweigh the positive effects (Coffee, 2001).
According to the reviewed literature, all four identities are related to performance. Therefore: Hypothesis 3a, b, c, d: Owner identity is related to Tobin’s Q, ROI, Growth and Beta. 2.4 – National effects on ownership structures
showed that in countries with a relative high degree of shareholder protection ownership concentration tend to be lower than in countries where shareholders are less protected.
In the next section, national effects, ownership concentration and owner identity in south European countries will be discussed respectively.
2.5 – Ownership concentration in south European countries
With respect to ownership concentration and ownership identity with a focus on south European countries, little research has been done. However, in their comparison on ownership structure in 19 European countries between listed firms and non-listed firms Claessens and Tzioumis (2006) found concentration of ownership in listed firms in Italy, Greece, Spain and Portugal to be lower than concentration in non-listed firms, but still relatively high. For example, 65 percent of Italian listed firms had a shareholder owning over 50 percent of the firm’s shares. The outcome of their study showed non-listed firms to have higher returns on assets and equity (Claessens and Tzioumis, 2006). Table 1 reviews the ownership concentration in the four south European country, with thresholds on 25 and 50 percent of the shares.
Table 1: ownership concentration in listed firms per country
COUNTRY >50% SH 25%-50% SH N0 25% SH NO. FIRMS
GREECE 65.17% 14.61% 20.22% 89
ITALY 44.59% 35.14% 20.27% 74
PORTUGAL 45.71% 20.00% 34.29% 35
SPAIN 28.75% 32.50% 38.75% 80
Source: Claessens and Tzioumis (2006)
2.6 – Divergence of capital right from voting right
Concentration of divergence exists when the percentage of voting right of a shareholder is not equal to his or her capital right. Capital right relates to the amount of cash that flows to the shareholder determined by the amount of shares that he or she owns. The percentage of voting right of a shareholder is directly related to the amount of control he or she possesses. Due to divergence in capital right and voting right, it could well be that a shareholder only possess a small percentage of capital, but has high control over the firm.
countries included in this research was 19.50 percent. Their study also showed that on average 26 percent of the sample firms are owned through a pyramid structure. For the countries included in this study, that average was 29.5 percent. This number shows that a pyramid structure is a more common instrument to provide shareholders with more control right.
Table 2: percentage of shares needed to control 20 percent of the firm and pyramid structure in south European firms
COUNTRY SHARES FOR 20 PERCENT CTR PYRAMIDE STRUCTURES
GREECE 20% 38%
ITALY 20% 11%
PORTUGAL 18,04% 25%
SPAIN 20% 44%
EUROPEAN AVERAGE 18.17% 27,23
Source: La porta et. Al (1999)
South European firms can be identified as firms with high concentrated ownership, and low divergence between capital right and voting right due to multiple share classes. However, in Greece and Spain is the number of firms with an ultimate owner controlled through a pyramid structure above the European average.
Based on the assumption that the divergence of capital right from voting right leads to private control benefits (Demsetz and Lehn, 1985 and Bradly, 1980), divergence of control is expected to have a negative relationship with various performance variables:
Hypothesis 4a,b,c : Divergence of control right is negatively related to Tobin’s Q, ROE and growth.
However, share types that divert voting right from capital right lead to situations in which controlling shareholders only have limited capital deposited into the company. These shareholders are assumed to be less risk averse (Bebchuck et. Al, 2000). Therefore:
Hypothesis 4d : Divergence of control right is positively related to Beta. 2.7 – Ownership identities in south European countries
respectively). Also, in a set of Scandinavian countries (Sweden, Finland, Norway and Denmark), firms are often owned by pension funds or foundations.
Table 3: Owner identities in south European countries
COUNTRY DISPERSED FAMILY STATE INSTITUTION OTHER
SPAIN 35% 15% 30% 20% -
GREECE 10% 50% 30% 10% -
ITALY 20% 15% 40% 15% -
PORTUGAL 10% 45% 25% 15% 5%
EUROPEAN AV. 34.18% 26.17% 22.35% 9.95% 7.35
Source: La Porta et. Al (1997)
3 - Methodology
The following section gives a specific overview of the methodology, variable selection, formulation of hypothesis and the generation of data. First, firm performance will be determined by means of four different measurements. Also, ownership concentration and divergence between voting right and capital right is explained in detail, followed by an explanation on the threshold with respect to an ultimate shareholder.
3.1 – Performance measurements Firm performance
There are many different ratios to measure firm performance. Healy et. Al. (1992) identified for example cash flow margin on sales, asset turnover and even employment growth rate to do so. Other scholars (e.g. Graham et. Al., 2013) use total shareholder return as performance measurement, while they assume maximizing return on each share should be a firm’s prior goal.
In this study, four different measurements of firm performance are used, to assess firm performance from different perspectives. First, profitability will be explained by means of market related ratios and accounting related ratios. Second, valuation as performance indicator will be discussed by explaining the difference between Tobin’s Q and Marginal Q. Then, growth of firms as performance measurement is discussed by comparing growth of the total sales and growth in total assets. Finally, risk measurement is discussed by explaining a firm’s systematic risk.
Profitability
performance. Using this method, shareholders wealth is measured by calculating income from dividend on shares and basic gains on capital. The market returns model assumes that dividend on shares are used to reinvest in the firm (Boynton and Oppenheimer, 2006).
Common used accounting related performance measurements in previous studies on ownership and firm performance include return on assets (ROA), return on equity (ROE), return on investment (ROI) and earnings per share (EPS). Here, only ROI and ROA are reviewed. ROI shows the rate of return that a firm has generated with invested money, and can be calculated by dividing a firm’s earnings before interest and taxes (EBIT) by its total assets. As with ROI, ROA measures a firm’s profitability in relation to its total assets, thus debts are also included. Where ROI and ROA bring often similar results with respect to the particular research they measure for, a study of Short (1999) on owner identity and firm performance in the UK found ROI to have a strong significant result. ROA presented the authors with an insignificant result. For this reason, ROI will be used as profitability measurement in this study.
Valuation
Since James Tobin wrote his world famous article ‘A general equilibrium approach to monetary policy’ (1969), his Q measurements are widely used to determine a firm’s value. Tobin hypothesized that the total value of a firm should be equal to the costs to replace all of its assets. Tobin’s Q can be calculated by dividing the total market value of a firm by its total assets. In the case of a low Q (between 0 and 1), this means that the value of a firm’s total assets is greater than the actual firm value. In other words, the firm is undervalued. In case of a Q value that is higher than one, total value of assets is lower than the actual firm value, making the firm overvalued. However, Tobin’s Q requires actual values of assets. Because European countries do not always state their assets against the current value, it is difficult to calculate the Q value for these firms.
To deal with this problem, Chung and Pruitt (1994) developed a simplified model, which proved to be more than 95% adequate. In this model, they assume that replacement costs of a firm’s asset equal the book value of those assets (Chung and Pruitt, 1994). Because of the high degree of explanation and it rather simple technique, this model is preferred in this study.
Growth
comparable with other measurement performance ratios (Anderson and Reeb, 2003). Therefore it is this ratio that will be used in this study.
Risk
The most commonly used risk measurement, which will be used in this study as well, is ‘Beta’. Beta was introduced by Fama and Miller (1972) in their Capital Asset Pricing Model (CAPM). The model is based on Harry Markowitz’ modern portfolio theory, which assumes that expected returns are correlated with the amount of risk of an investment. The model distinguishes between systematic risk, which is present in every single investment and specific (non-systematic) risk, which can be eliminated by means of diversification of investments. Specific risk concerns the sensibility of the returns on a specific investment and focus on factors that are only of influence on that specific investment. Systematic risk concerns risk that influences every investment, and arise from basic (macro-economic) market development. Therefore, systematic risk is also referred to as market risk, and is expressed as Beta or β. The CAPM model takes in various considerations; all firms operate under perfect market competition; investment choices are made based on statistical analysis; all investors act in the same way and all investors can use the capital markets under the same conditions (Jagannathan and Wang, 1996). The calculated Beta informs on the degree of deviation from an investments historic return mean. A high (>1) value means that the investment/asset has a higher return than the market (high risk), a low beta (<1) value means that the investment/asset has a lower return than the market. Therefore, Bèta can derive a firm’s performance by means of determining the returns on the firm’s assets.
To conclude, ROI is used in this study because it proved strong significant results in relation to firm performance in previous studies. Chang and Pruitt’s simplified version of Q is used because of its simplicity and high explanatory power. Total asset growth is used because it is easy to compare with other performance indicators. Beta is used because of its accurate estimation of a firm’s performance by determining the returns that the firm receives on its assets.
3.2 – Ownership structure
According to Pedersen and Thompson (1996), ownership structure can be defined as ‘the distribution of equity with regard to votes and capital but also the identity of the equity owners’. These two dimensions are explained thoroughly in this section. First, ownership concentration will be discussed, including their measurements and the issue of voting rights that diverges from capital right. Second, owner identities and their measurements are explained.
Ownership concentration is together with ownership identity an important dimension in a firm’s structure. The degree of concentration is measured by the percentage of capital right owned by a firm’s largest shareholder(s) (Demsetz and Lehn, 1985). Ownership concentration can be measured in two different ways. Non-metric concentration measurement determines the degree of concentration by calculate the percentage of shares of the firm’s largest shareholder. Often, research is performed with a threshold for determining a firm’s largest shareholder(s). For example, La Porta et. Al. (1997) use a threshold of 20 percent to determine ultimate shareholder(s) of a firm. They argue that 20% is often enough to have effective control. In metric concentration measurement one should also look at the allocation of ownership. In their study, Pedersen and Thomson (1999) for example compared voting right and capital right.
Concentration divergence
Concentration of divergence exists when the percentage of voting right of a shareholder is not equal to his or her capital right. Capital right relates to the amount of cash that flows to the shareholder determined by the amount of shares that he or she owns. The percentage of voting right of a shareholder is directly related to the amount of control he or she possesses. Due to divergence in capital right and voting right, it could well be that a shareholder only possess a small percentage of capital, but has high control over the firm.
In literature on ownership concentration, three mechanisms have been identified in which small equity shareholders have a high degree of control (Bebchuck et. Al., 2000). These mechanisms are: (1) cross-holding, in which a listed firm owns stock in another listed firm, and vice versa (2) pyramiding, in which an owner uses an existing firm to set up a new firm (Almeida and Wolfenzon, 2006) and (3) by means of dual-class equity structure, where a firm issues different types of stock. In their study on corporate ownership around the world, La Porta et. Al. (1999) developed a measurement for both the size of capital right and voting right, which is later often used by other scholars. In their model, the total percentage of shares of the owning structure (e.g. a pyramid of firms) equals the capital right. However, with respect to the voting right, the percentage of shares owned by the smallest party in the control structure is used.
Owner Identity
ownership identity is in most cases measured in a non-metric way. As discussed in the previous section, a threshold of 20 percent is often sufficient to have effective control over a firm. A simple way to identify the owning identity is to match the largest shareholder with one of the categorized identities, such as family, institution or state. When no shareholder can be identified with the percentage of shares that the threshold requires, than the owning identity is dispersed. A metric measurement for owner identity is not widely applied and therefore not discussed here.
4 – Research method
In this thesis the research method will include both simple statistics and regression analysis. First, the south European firms will be divided in groups by means of their ultimate owner and by country they operate in. The average performance of the firms will be compared using simple statistics.
Second, regression analysis will take place to explain the four performance variables. Multiple regression analysis will be conducted including multiple ownership concentration variables with respect to voting right, voting divergence and the second and third largest shareholder. Dummy variable include the various ownership identities. Finally, three variables are included to control for industry, firm age and size.
In the next section, all dependent and independent variables will be explained. First, the performance variables will be explained, than concentration variables and last control variables will be discussed.
4.1 – Performance variables Valuation
Valuation of the south European firms included in the sample will be measured by means of an adjusted version of Tobin’s Q. As explained earlier, this adjusted formula makes it easier to measure valuation, but still has sufficient power to explain the variable (Chung & Pruitt, 1994). The formula developed by Chung & Pruitt is as follows:
Q = MVE + PS + DEBT TA
In this formula, the abbreviations stand for:
Debt = is the value of the firm’s short-term liabilities net of its short-term assets plus the book- value of the firm’s long-term debt
TA = the book value of the total assets of the firm Profitability
Profitability of the sample firms will be measured by return on equity (ROI). ROI will be determined by the formula:
ROI = Earnings before interest and taxes (EBIT)_____ Total Assets
Because of different tax percentages in various countries, ROI uses the net income figure before taxes have been paid.
Growth
To measure a firm’s growth, this thesis calculates the increase (decrease) in total assets of the firm. Risk
In this thesis, the variable risk is measured by the CAPM model to calculate beta. The formula combines the time value of money, (to determine the return an investor should receive over the time) and the risk of putting his or her money into an investment (Fama and French, 2004). The Beta values do not have to be calculated, as they are available in DataStream.
4.2 – Ownership structure variables and hypothesis
To provide a detailed picture of the ownership structure of south European firms, multiple variables are used to investigate the degree of voting right of the ultimate shareholder, the degree of control divergence and the degree of control right of the second and third largest shareholders. Also, hypotheses are formulated for each independent variable and for the dummy variables.
DC_LS
DC_LS measures the degree of control (in %) of the largest shareholder. This variable will show how concentrated the ownership is in south European firms. According to the literature, high concentration of ownership makes it easier to monitor managers, align incentives and decrease costs that occur due to agency problems. This variable is expected to have a positive relationship with the performance variables except for risk.
DC/CR_LS calculates the degree of divergence between capital right and voting right of the ultimate shareholder. This will be done by dividing the voting right of the ultimate shareholder by its capital right. According to the literature, shareholders with high control right due to divergence in shares tend to act opportunistic and use their position to benefit themselves, also known as ‘private control benefit’. As explained in the literature review, this variable is expected to have a negative relationship with the performance variables, except for risk.
DC_23
DC_23 measures the degree of control (in %) of the two largest shareholders behind the ultimate shareholder. As explained in the literature review, two (or more) large shareholders behind the largest shareholder do possibly have a positive effect on firm performance. Large shareholders are able to monitor the ultimate shareholder and prevent them from acting opportunistically. This variable is expected to have a positive relationship with the performance variables, except for risk. Dummy Variables: Identity
This variable indicates the identity of the ultimate shareholder of a firm. This thesis identifies four identities: family ownership, state ownership, institutional ownership and dispersed ownership. Following La Porta et. Al. (2007), this thesis uses a threshold of 20%. In other words, a shareholder needs to own 20% of the shares to be recognized as an ‘ultimate owner’. If there is no shareholder meeting this threshold, then a firm is identified as having dispersed ownership.
4.3 – Control variables Industry
Sample firms are allocated to an industry using the first two digits of their Standard Industrial Classification (SIC) code. These two digits identify the major industry group the firm is operating in. According to Short et. Al. (2009), who investigated the performance of a large sample of Swedish firms in relation to their performance over a five year period, the industry where a firm operates in has a significant effect on the performance. They argue that this due to different accounting standards between industries. Hawawini et. Al. (2003) found that industry factors have a significant effect on a firm’s performance too.
Firm Age
and Jap, 2007). Scholars that found opposite results follow the perspective that older firms are not necessarily finding themselves in the final stages of the ‘life cycle’. In contrast, older firm may be capable to diversify their business and improve their performance (Lumpkin and Dess, 2001). Although contrasting results are identified by previous literature, most of them follow the ‘life cycle theory’. Therefore, this thesis assumes firm age to have a negative effect on the performance variables except for valuation.
Firm size
Arguments with respect to firm size in relation to firm performance are often based on the advantages of economies of scale, where costs of production, costs of distribution et cetera decrease. A large sample study of Lee (1999) proved firm size to have a significant positive effect on profitability. Shin and Stulz (2000) found firm size to be positively related to risk. Opposite results come from Eisenberg and Sundgren et. Al. (1998), who found a negative effect of firm size in relation to valuation and from Hall (1986), who found a negative effect of firm size on growth of the company. Following these scholars, firm size is assumed to have a positive effect on both beta and ROE, and a negative effect on both Tobin’s Q and growth. Firm size is measured by the firm’s market capitalization.
4.4 – Data selection and sample restrictions
It is well known that south European economies are in heavy weather since the economic crisis. Therefore, market data as of the year 2008 may not be representative for this research. Therefore, the time-frame of analyzing data is 2003 – 2007. The sample firms that are used in this research are selected out of the research ‘Corporate ownership around the world’, from La Porta et. Al. (2007). Out of their dataset, for each country 8 to 15 non-financial firms have been selected.
Accounting data to calculate the various variables and data on ownership structure are extracted from DataStream, annual rapports and other verifiable web-based information.
To resume, firms included in this research should: - Originate from Greece, Italy, Portugal or Spain - Be non-financial firms
- State their reports in Euro’s
- Have sufficient information on the various variables available
5 – Results
The results part of this research includes three sections. First, simple statistics is applied to allocate the sample firms according to their owner identities and firm performance from 2003 to 2007. Then, regression analysis will be applied followed by the results of this analysis. The results part will be closed with a discussion based on the results of the regression analysis, including limitations and recommendations for further research.
5.1 – Simple statistics
The ultimate ownership identities of the 46 sample companies are allocated in the following way: Table 4: Allocation of owner identity among sample firms
Ultimate Owner Greece Italy Portugal Spain Total
Family 10 8 5 4 27
State 0 3 3 2 8
Institution 0 3 0 3 6
Dispersed 0 1 0 4 5
Total 10 15 8 13 46
Source: Own research
After calculation of the four performance variable for the years 2003 to 2007, the means of these values are used and allocated to the categories that can be defined by owner identity and the originating country. This is presented in table 5.
Table 5: average values for the performance variable per country and ownership category
Average of Q 2003-2007 Average of ROI 2003-2007
Identity Greece Italy Portugal Spain Tot. Greece Italy Portugal Spain Tot.
Family 0,32 0,31 0,39 0,35 0,33 31,49 17,71 27,54 24,76 25,68
State 0 0,38 0,42 0,38 0,40 0 22,24 17,84 30,70 22,70
Institution 0 0,38 0 0,30 0,34 0 20,30 0 28,24 24,27
Dispersed 0 0,43 0 0,38 0,39 0 17,87 0 25,60 24,05
Total 0,32 0,35 0,40 0,35 0,35 31,49 19,14 23,90 26,74 24,80 Average of Growth 2003-2007 Average of Beta 2003-2007
Identity Greece Italy Portugal Spain Tot. Greece Italy Portugal Spain Tot.
Family 8,05 2,79 4,55 12,46 6,49 1,11 0,65 1,12 1,07 0,97
State 0 4,37 2,19 8,95 4,69 0 0,78 1,05 0,88 0,91
Institution 0 3,94 0 11,52 7,73 0 0,74 0 0,79 0,77
Dispersed 0 9,39 0 13,65 12,79 0 1,38 0 0,99 1,07
Total 8,05 3,77 3,67 12,06 7,02 1,11 0,74 1,09 0,94 0,95
Source: own research
various owner identities. The largest difference between q values has been found in family owned sample firms in Italy (0,31) and Portugal (0,39)
Sample firms originating from Portugal perform best with respect to valuation, with a 0,40 value. Italy and Spain follow with a 0,35 value and Greece with 0,32. Among the various owner identities, state owned sample firms have the highest valuation (0,40), followed by dispersed ownership (0,39), institutional ownership (0,34) and family ownership (0,33).
With respect to the average return on investment from 2003 to 2007, there are differences in performance compared to valuation. Where sample firms from Greece were ranked last on their valuation, they outperform sample firms from other countries on return on investment (31,49). Sample firms from Spain (26,74) and Portugal (23,90) follow. Sample firms originating from Italy (19,14) have on average the lowest return on investment between 2003 and 2007. Family owned firms (25,68) have on average the highest return on investment, and state owned companies (22,70) the lowest. Family firms from Greece (31,49) had on average the highest return on investment between 2003 and 2007. Family owned companies in Portugal generated the smallest return on investment.
With respect to the average growth rates from 2003 to 2007, firms with dispersed ownership (12,79) performed best, followed by institutionally owned firms (7,73), family owned firms (6,49) and state owned companies (4,69). Firms in Spain had on average the highest growth rate (12,06), led by the firms with dispersed ownership (13,65). Firms from Portugal had the weakest performance, with state owned companies only growing 2,19 percent on average per year.
Firms with dispersed ownership (1,07) have the highest beta value, followed by family companies (0,97), state owned companies (0,91) and companies owned by an institution (0,77). Comparing among countries, Greece (1,11) has the highest value for beta and Italy (0,74) has the lowest. From all the firms included in the sample, firms with dispersed ownership in Italy (1,38) have the highest value for beta and family owned firms in Italy (0,65) have the lowest value.
below 1. Companies with state ownership had on average the weakest performance from 2003 to 2007, with a moderate valuation, moderate return on investment compared to the other categories, low growth rates and a moderate beta value.
The above average performance of family firms confirms the incentive alignment and monitoring arguments that have been discussed in the literature review. Most of the firms with family ownership included in the sample had family members in the management and in the board of directors. This structure provides the company with incentive alignments between the management and the family that owns the firm with a predominant amount of the shares, because of the participation of family members in the management. Also, the presence of family members in the management allow the family to efficiently monitor the actions taken by the management, reducing costs that exist due to agency problems.
Finally, as described by Kim and Gao (2013), the longevity goals of family businesses have a positive effect on their performance, because they focus on long-term profit and long-term competitive advantage.
The differences in values among the four performance variables may also be related to the various strategies that different owner identities prefer. Where companies that are owned by an institution and those that have dispersed ownership often tend to focus on high return on investment and high growth rates by increasing the risk, state owned companies often proof their bureaucratic way of working with lower growth rates and a lower levels of risk.
The table with average values of the four performance variable from 2003 to 2007 shows the relationships between the ownership identity and the performance of the firms included in the sample. To provide a more detailed and specific overview of the correlations between the variables, multiple regression analysis will be conducted and discussed in the next section.
5.2 – Regression analysis
In this section, multiple regression analysis will be conducted and discussed in order to determine whether or not their exist relationship between ownership structure of the south European companies included in the sample and if so, to determine if these relationships are significant or not. Table six will present descriptive statistics of the variables included in the research for the years 2003 to 2007.
the largest shareholder is 43,86%, where the second and third largest shareholders own on average 12,37% of the voting rights. These high levels of ownership concentration are consistent with research of Claessens and Tzioumis (2006) and La Porta et. Al. (2007). The values of divergence between capital right and voting right vary from 1 to 60,50 with an average of 3,22. This indicates a high divergence between capital and voting right. This preliminary conclusion is not consistent with previous research of La Porta et. Al, as they found values close to 1. The relatively large difference in the values showed in the table may be the cause of significant structure changes.
The sample size includes 46 companies in total: 27 family owned firms, 8 state owned firms, 6 firms that are owned by an institution and 5 firms that have dispersed ownership.
Table 6: Descriptive statistics for the variables per year
Variables Mean Min Max St.Dev. Skewness Kurtosis
Size ‘03* 11266 23,48 174456 27783 4,90 27,42 Size ‘04* 12729 19,63 179864 29569 4,50 23,39 Size ‘05* 13884 22,53 185440 30968 4,33 21,70 Size ‘06* 15777 40,54 191118 32714 4,03 18,98 Size ‘07* 17066 67,32 197115 34876 3,77 16,42 Age 71,11 16 223 40,37 1,30 2,93
* All values for size have to be multiplied by 1000
Table 7 provides an overview of the correlation values between the variables. For the correlations and regression analysis, the average values for the years 2003-2005 have been used. The table shows that the four dependent variables have no high correlations with each other. This is prove that the variables are well selected, since they try to test the performance of south European companies in various ways. The same is applicable with respect to the variables that describe the ownership concentration of the sample companies, where low correlation values are found. The absence of high correlation values between those three variables reduces the possibility of collinearity.
Table 7: Correlation matrix of variables
Q RO I G R O W TH B ET A D EG R EE O F C O NT R O L LA R G ES T SH A R EH O LD ER D EG R EE O F D IV ER G ENC E B ETT W EE N C O NT R O L RI G H T A ND C A P ITA L R IG H T D EG R EE O F C O NT R O L 2 ND A ND 3 RD LA R G ES T SH A R H O LD ER IND U ST R Y SIZE AG E Q 1 ROI -,125 1 GROWTH -,083 0,220* 1 BETA -,233* -,156 ,062 1 DC_LS ,385** ,198 ,285* -,272* 1 CR_VR_LS -,112 ,193 -,317* ,281* -,113 1 DC_23 ,318* -,146 ,244* -,451** ,144 ,190 1 INDUSTRY ,347* -,100 ,175 ,081 ,052 -,087 -,218 1 SIZE ,066 -,257* -,218* ,069 -,283* -,066 -,297* ,049 1 AGE ,014 ,029 -,181 ,019 -,143 ,198 ,058 ,252* ,131 1
With respect to the ownership concentration hypotheses, the signs for 10 out of 12 correlations are consistent with the expected relationship between the independent and dependent variable. For the relationship between the divergence of capital right and voting right and ROI, a negative relationship was expected. However, the correlation efficient shows that this relationship is positive (,193). Also, the expected positive relationship between the degree of control of the second and third largest shareholder proved to be negative (-,146).
Regression analysis results
The four performance variables will be tested separately according to two models. First, all independent variable will be included without the dummy owner variable. The second model will include the dummy identity variables. The results of the regression analysis show for both models and for all dependent variables an R-squared value that is acceptable. This indicates that the independent variables explain a substantial part of the performance of south European firms included in the sample between 2003 and 2007.
The results for the regression analysis with Q as the dependent variable show that the degree of control of the largest shareholder and the degree of control of the second and third largest shareholder both have a positive significant effect on the dependent variable. This is consistent with the expectations after reviewing previous literature, and confirms the ‘incentive alignment’ argument and the ‘private benefit argument’. The divergence between capital right and voting right shows the expected negative coefficient. However, this coefficient is not significant.
With respect to the owner identities, none of the dummy variable shows a significant relationship with the dependent variable. Family ownership shows an insignificant negative coefficient with the dependent variable and state ownership, institutional ownership and dispersed ownership show an insignificant positive coefficient. Therefore, it can be concluded that ownership identity does not affect the valuation of the sample firms between 2003 and 2007.
To summarize, hypothesis 1a and 2a are supported, while 3a and 4a are rejected. Table 8: Model summary with dependent variable ‘Q’
Model R R Square Adjusted R Square
Std. Error of the estimate
1 .678 .459 .304 .07441
Table 9: Anova ‘Q’
1 Regression Residual Total 13.118 8.736 21.854 10 1152 1162 .932 .013 123,472 .002
Table 10: Coefficients of variables ‘Q’
Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) DC_LS CR_VR_LS DC_23 Industry Size Age Family_Dummy State_Dummy Institution_Dummy Dispersed_Dummy .111 .059 -.023 .042 .048 .022 -.015 -.031 .002 .014 .009 .031 .010 .145 .007 .006 .015 .024 .009 .004 .027 .012 .126 -.072 .038 .103 .201 -.058 -.029 .030 .053 .150 3.910 5.225 -1.552 4.125 4.773 1.442 -1.281 -1.103 .301 1.383 .956 .000 .002 .121 .001 .001 .149 .220 .284 .199 .214 .239
As in the previous test, the goodness of fit of the model is also sufficient for dependent variable ROI. The regression analysis with return on investment as the dependent variable shows three significant coefficients: a positive significant coefficient between return on investment and the degree of control of the largest shareholder and a negative significant coefficient between return on investment and dispersed ownership. Again, this result is consistent with theory that large shareholders are able to reduce costs that occur due to agency problems. The divergence between capital right and voting right shows a significant negative coefficient with return on investment. Here, there is proof for the private benefit argument, where large shareholders act opportunistically to benefit in private at the cost of the company. The dummy identity variables all have a negative coefficient with the dependent variable. However, the negative coefficient for the dummies Family, State and Institution are not significant. Therefore, we say that only dispersed ownership relates to the firm’s return on investment.
To summarize, hypothesis 1b and 3b and 4b are supported, while hypothesis 2b is rejected. Important to note is that only dispersed ownership has a negative significant relation with respect to the return on investment of the sample firms.
Table 11: Model summary with dependent variable ‘ROI’
Model R R Square Adjusted R Square
Std. Error of the estimate
Table 12: Anova ‘ROI’
Model Sum of Squares df Mean Square F Sig.
1 Regression Residual Total 12.521 7.440 19.961 10 1043 1053 .842 .010 116.476 .004
Table 13: Coefficients of variables ‘ROI’
Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) DC_LS CR_VR_LS DC_23 Industry Size Age Family_Dummy State_Dummy Institution_Dummy Dispersed_Dummy .096 .047 -.029 .003 -.032 .036 .017 -.016 -.008 -.014 -.022 .034 .005 .011 .007 .012 .007 .022 .009 .016 .010 .008 .104 -.082 .032 -.033 .128 .059 -.061 -.024 -.052 -.069 3.624 4.891 -3.302 .253 -.433 -.883 1.281 -1.604 -.474 -1.373 -2.831 .000 .001 .026 .061 .177 .041 .188 .062 .142 .073 .006
Although the adjusted R square value is lower than in the previous to tests, it is still acceptably high in the regression analysis model with growth as dependent variable. Again ownership concentration is found to have a positive effect on firm performance, which is in this case measured by the dependent variable growth. The coefficient of both the degree of control of the largest shareholder and the degree of control of the second and third largest shareholder show a strong significant relationship with the dependent variable. However, DC_23 is only significant at a 0.05 significance level. The divergence of capital right from voting right shows an expected negative coefficient that is significant with the dependent variable. Again, there is proof that divergence of capital right from voting right leads to opportunistic behavior from large shareholders, and therefore has a negative effect on performance.
Three out of four dummy variables show a significant positive relationship with the dependent variable at a 0.10 significance level. Although dispersed ownership shows a positive coefficient with the dependent variable, this one is not significant. The positive coefficient of state ownership and institutional ownership is only significant at a 0.05 level. The positive relation of family ownership with the dependent variable is also significant at a 0.01 level.
Model R R Square Adjusted R Square
Std. Error of the estimate
1 .639 .408 .238 .07326
Table 15: Anova ‘Growth’
Model Sum of Squares df Mean Square F Sig.
1 Regression Residual Total 13.775 7,477 21.252 10 1131 1141 .866 .914 119.211 .003
Table 14: Coefficients of variables ‘Growth’
Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) DC_LS CR_VR_LS DC_23 Industry Size Age Family_Dummy State_Dummy Institution_Dummy Dispersed_Dummy .099 .066 -.042 .037 .004 -.024 -.009 .044 .039 .031 .018 .028 .004 .009 .007 .001 .013 .021 .008 .009 .012 .026 .110 -.148 .072 .022 -.128 -.025 .139 .118 .069 .055 4.221 5.286 -3.337 3.582 .880 -1.183 -.599 3.288 2.994 3.328 1.301 .000 .001 .004 .002 .161 .003 .009 .003 .013 .011 .071
0.01 level. Divergence between capital right and voting right shows a significant positive relationship with Beta.
With respect to the dummy variables, only family ownership shows a significant relationship with Beta at a 0.05 level. There is no proof that other identities relate to the level of risk a firm takes. To summarize, hypothesis 4,a,b,c, and d are all supported. It should be noted that hypothesis 3d is only supported because of the significant negative relationship of family firms.
Table 15: Model summary with dependent variable ‘Beta’
Model R R Square Adjusted R Square
Std. Error of the estimate
1 .640 .049 .240 .06992
Table 16: Anova
Model Sum of Squares df Mean Square F Sig.
1 Regression Residual Total 14.288 7.621 21.909 10 1098 1108 .902 .957 119.311 .001
Table 17: Coefficients of variables ‘Beta’
Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) DC_LS CR_VR_LS DC_23 Industry Size Age Family_Dummy State_Dummy Institution_Dummy Dispersed_Dummy .104 -.058 .066 -.072 .023 .018 .003 -.035 .012 .009 .026 .033 .101 .006 .004 .017 .009 .004 .012 .014 .013 .021 -.128 .113 -.139 .192 .068 .019 -.126 .130 .143 .188 4,138 -5.137 5.286 -5.881 1.396 1.199 .488 -3.199 .844 .773 1.498 .001 .013 .004 .001 .144 .152 .210 .022 .116 .122 .127
Effect of control variables on dependent variable
is consistent with reviewed theories, because larger firms can profit from scaling, lower costs of production et cetera.
With respect to growth, firm size shows a significant negative coefficient. This is also consistent with previous literature. Firm age shows a significant positive effect on firm growth. This is inconsistent with the theory, where firm age only was expected to have a positive relationship with firm growth.
6 – Discussion
In table 5, the average values of the performance variable per country and per owner category give a simple overview of the performance of the firms included in the sample between 2003 and 2007. Also, the table shows which owner identity in which country is dominant. In Greece, Italy and Portugal, family ownership is most common among the sample firms. In Spain, both family and dispersed ownership is equally common among the sample firms.
Compared among ownership categories, family firms tend to have a higher average performance, scoring an average valuation, high return on investments, high growth rates and a beta value below one. State owned companies performance the weakest among the four categories. Comparing among countries, Spain performed best on average, with a moderate valuation, a second highest return on investment, a large growth percentage and a modest beta value. Italian firms had the weakest performance on average.
