Ownership Concentration and Firm Performance in the Netherlands

Ownership Concentration and Firm

Performance in the Netherlands

Does a stock listing on Euronext Amsterdam have a beneficial effect?

Thesis

Master of Science in Business Administration

Specialisation: Finance

University of Groningen

Faculty of Economics and Business

Author: R.G. Braam Student nr: 1910345

1

Ownership Concentration and Firm

Performance in the Netherlands

Does a stock listing on Euronext Amsterdam have a beneficial effect?

ABSTRACT

This paper empirically documents the way in which a listing influences firm performance across different ownership types by focusing on the conflict between majority and minority shareholders, and using data from 167 non and listed Dutch firms between 2000 and 2010. A

negative effect is found between listing status and firm performance for concentrated ownership suggesting that the private benefits of control that accrue to large shareholders

have a negative effect on firm performance. In addition the hypothesis that the identity of large owners; family or individual, institutional, state and widely held has important

implication on listing status and firm performance is supported.

Keywords: listing status, ownership structure, concentration, ownership type, agency costs, the Netherlands.

2 Preface

After several years of study, this master thesis is the final assignment in completing my Master of Finance at the University of Groningen. Recent years the stock markets have experienced tremendous financial blows, some firms went bankrupt while other experienced significant changes in their ownership structure due to government bailouts. Next to this the media criticized managers and large shareholders of serving their own interests.

These events have lead to the question whether the relationship between listing status, concentration of ownership and firm performance leads to value maximisation or the expropriation of minority shareholders and whether the relationship holds if shareholders are classified into different categories. In this master thesis I will try to answer these questions and investigate how this relationship holds in the Netherlands for both listed and non listed companies.

3

Table of Contents

3.0 Data and Methodology 17

3.1 Sample selection and data sources 17

4 1. Introduction

Does ownership structure matter, and what are its effects on firm performance? These questions have been researched extensively and are subject of an important and ongoing debate in the corporate finance literature. The debate goes back to Berle and Means (1932) who argue that an inverse relation should be observed between diffuseness of shareholdings and firm performance. However the Berle and Means model of the corporation in which the CEO is not an owner and ownership is dispersed does not apply to most firms around the world (Sraer and Thesmar 2007). It turns out that most firms around the world have a dominant owner. La Porta et al (1999) research the ultimate owners of the 20 largest publically traded firms in each of the 27 generally richest economies and finds that only 40 percent of them are widely held or controlled by widely held entities. In addition Faccio and Lang (2002) find that more than 60 percent of exchange listed firms in Germany, France, and Italy are family firms. Other studies that reveal a significant concentration of ownership are e.g. Franks and Mayer (1994) for Germany, Earle et al (2005) for Hungary and Gedajlovic and Shapiro (2002) for Japan. These studies all prove that in many countries ownership of capital is not dispersed but in hands of large shareholders who are active in corporate governance.

5 firms in the Netherlands. The Netherlands is of particular interest for two reasons. First, the Netherlands is in continental Europe and contrary to the US and UK its ownership concentration ranges widely (Chirinko et al 2004). Second, most existing studies on firm performance and ownership concentration have focused on Anglo Saxon countries and not much is known about the Dutch case. To test the hypothesis between the relation of listing status, different investor types and firm performance of listed and non listed firms in the Netherlands, data is collected on 167 non financial companies listed or established in the Netherlands over the 2000 – 2010 periods. The performance variables used are return on assets and return on equity. All data, financial, listing status and ownership type are collected from the “Orbis” database. Orbis covers comprehensive information on millions of listed and non listed companies worldwide.

The main research questions are as follows:

1. Is a listing status an important determinant of firm performance?

2. Do different ownership structures influence the relation between listing status and firm performance?

The presented research contributes to the literature in several ways. Empirical research that examined the relationship has produced mixed results and has not given much attention to the impact of a private firm or stock market listed firm on different ownership structures and firm performance variables. This research will therefore increase our understanding on how and through which different ownership structures a private or public market environment effects firm performance. By looking only at quoted and unquoted companies in the Netherlands allows for a relatively clean test and avoids the problem of having to control for possible institutional differences between countries. Finally we will add new knowledge to the existing though limited European literature by studying this relationship in a specific European country which is characterised by insider dominated financial systems which is still far less understood than in Anglo Saxon markets.

6 2. Literature Review

In this section the relevant theoretical background is presented. It consists of four sections. Section 2.1 will discuss the two fundamental theories underlying ownership concentration and firm performance. In section 2.2 the effects of a listing or the decision not to list on performance will be discussed. Section 2.3 will discuss the effects of ownership concentration on firm performance and sections 2.4 will end up with the relation between different ownership types and firm performance.

2.1 Agency theory

Arosa and Maseda (2010) state that ownership structure is one of the main corporate governance mechanisms influencing the scope of a firm’s agency costs. The separation of ownership and control in a firm can lead to conflicts of interests between financiers and managers who run the firm (Jensen and Meckling 1976). The divergence of interest between different agents or “agency conflicts” can be mitigated through monitoring. In widely held firms shareholders are however most likely not well informed enough and unwilling to invest their personal resources into a monitoring activity. This is also referred to as a “free rider problem” (Grossman and Hart 1980). However, shareholders who hold a substantial equity stake benefit from investing in a monitoring activity and as a consequence provide a solution for the free rider problem experienced by small shareholders. Large shareholders can by investing in a monitoring activity reduce agency costs and subsequently intervene in management as shareholder voting power is not divided between many different groups of investors (Shleifer and Vishny 1997). Monitoring of a corporation is done by a variety of different groups like auditors, shareholders, investment banks and rating agencies. Two types of monitoring can be identified (Tirole 2006) (1) Active monitoring; which involves intervening in management in order to maximize shareholder claims. Active monitoring is forward looking in that it analyses the firms past actions only to the extent that it can be altered to increase firm value. The mechanism used to intervene and implement the change depends on the identity of the active monitor. Mechanisms used can for e.g. be, a representative of the shareholder that sits on the board, the general meeting or a via takeover. Active monitoring is closely linked to the exercise of control rights. (2) Speculative

monitoring; is backward looking in that is analyses the firms position at a given point in time.

7 However concentrated ownership can be detrimental. Agency theory suggests that large shareholders often use their controlling position to undertake activities intended to obtain private benefits to the detriment of minority shareholder wealth (Miller et al 2007 and Arosa and Maseda 2010). These private benefits of control can take many different forms. If e.g. the controlling shareholder is also the manager of the company, minority shareholders can be exploited by paying a high salary to the controlling shareholder. Alternatively controlling shareholders can exploit business relations between the company and other companies she wholly owns. Transfer pricing can for instance be used to shift profits from the company with minority shareholders to a company that is wholly owned by the controlling shareholder or the company with minority shareholders can invest in assets that are then sold or leased at favorable terms to the wholly owned firm (Shleifer and Vishny 1997). The probability of expropriation of minority shareholders by large shareholders is especially high if they hold voting rights in excess of cash flow rights (Faccio et al 2001 and Edwards and Weichenrieder 2004). A greater concentration of ownership can thus lead to a greater incentive for controlling shareholders to primarily represent their own interests and not those of other shareholders, employees or the company they invest in (Andres 2008). Based on the theoretical considerations discussed above it is unclear whether large shareholders act in favor of all shareholders or if their influence affects the firm negatively.

2.2 Listing status

8 corporate finance literature (e.g. Pagano et al 1996, Röell 1996 and Helwege and Packer 2009). Some of the advantages and disadvantages cited by these authors and Euronext1 are:

(1) the benefits of diversification: An IPO provides the owners with the possibility to diversify

their holdings (Chemmanur and Fulghieri 1999). Pagano et al (1996), Rydqvist and Högholm (1995) find for a sample of Italian and Swedish firms that over half of the IPO’s owners do not cash in at all, though they may do so at a later stage. Franks and Mayer (1994) finds that within seven years two thirds of shares of main entrants are sold to outside investors. However an IPO is one way of obtaining a dispersed shareholder base as most private companies have numerous other shareholders to diversify their wealth. In addition Bodnaruk et al (2008) find in a study of IPO’s in Sweden that the degree of diversification on the part of shareholders is negatively related to under pricing and the likelihood of going public. (2) The

private benefits of control: a substantial amount of studies that study the decision to be a

private or public company focus on the benefits of control that accumulate to owners / managers, with the view that high benefits of control will less often lead to a listing (Gopalan and Gormley 2008). A board structure that allows management more autonomy to manage the firm as it sees fit is an example of a benefit of control (Boot et al 2006). The common feature of all private benefits of control is that some value whatever the source, is not shared among all shareholders but is enjoyed exclusively by the party in control (Ehrhardt and Lahr 2008). Many researchers implicitly assume that these private benefits of control come at the cost of efficiency (e.g. Burkhart et al 2003) and thus may affect firm performance negatively. Demsetz and Lehn (1985) claim that firms in the media and sport industry are suited to indulgence a manager personal preferences. However other authors suggest that private benefits of control do not need to be inefficient (Villalonga and Amit 2006). The fact that family controlled firms when e.g. the founder is the CEO in some settings operate more efficiently than other firms suggests that private benefits of control can be efficient. (Anderson and Reeb 2003)(3) Growth opportunities: the decision to stay private or go public

will likely affect the growth opportunities of the firm. If firms are faced by debt overhang they will be more likely to raise new funds via an initial public offering. Rosen et al (2005) confirms these results and finds that the leverage of banks prior to an IPO is above leverage levels of counterparts suggesting that debt overhang encourages firms to list on an exchange. Fisher (2000) studied initial public offerings activity of German firms during the latter half of

9 the 1990s and finds leverage is not an important determinant of going public but that growth opportunities are. Pagano et al (1996) also confirms for their set of Italian firms that growth opportunities are an important determinant to list on an exchange. (4) The value of listing: Public share prices can mitigate the costs of duplicative monitoring for investors (Chemmanur and Fulghieri 1999). In addition Sunder (2004) shows that the costs of bank borrowing may decline because of the increase in available information. Their results are supported by Pagano et al (1996) who also claim that the cost of credit declines because more information is publicly available. Therefore firms that will not benefit from the information segregation are not likely to go public.

Although the advantages and disadvantage of being a public or private firm have been studied extensively, little empirical research has looked into the question how a listing or the decision not to list affects firm behavior and performance. A study by Kaserer and Schiereck (2008) on the cost of going and being public on behalf of Deutsche Börse Group2 finds that Deutsche Börse has a successful history in helping companies to grow and mature. They find over the period 2001 through 2008 that 6.3% of the IPO’s which listed on the Deutsche Börse junior segment entry standard moved up to the exchange’s main markets. In addition they find that each of the three major exchanges (Deutsche Börse, London Stock Exchange and Euronext) has a different industry focus. The Frankfurt Prime / General Standard however, seems to be the most attractive along different measures of being and going public costs. They moreover provide clear evidence in favor of low costs of capital induced by transaction costs at Deutsche Börse. Evidently the cost of being public and going public differs across exchanges and will therefore likely effect firm performance differently. Pagano et al (1996) find that based on return on investment (ROI) new public companies are more profitable than their private counterparts before the IPO, but not at the IPO data or later. Suggesting that the stock market does not attract companies with the most profitable investments. Jaskiewicz et al (2005) examine the long run stock performance of German and Spanish initial public offerings between 1990 and 2000 differentiating between non family firms and family firms. Their results show that three years after going public German firms on average realized an abnormal return of -32.8% and Spanish firms realized and abnormal return of -36.7%. In addition family initial public offerings underperform nonfamily initial public offerings but the observed underperformance is not significant. Helwege and Packer (2009) report that control

2 _{Deutsche Börse Group is one of the leading exchange organizations providing companies, investors and}

10 is an important factor for firms not to go public, it however does not appear to be detrimental for firm performance. Schoubben and van Hulle (2008) research whether performance drivers behave differently in a quoted environment as compared to a non quoted environment for a sample of Belgium firms in the period 1992-2003. They find that for public quoted companies, competition, financial pressure and family ownership have a positive impact on corporate performance. In contrast these variables influence the performance of private firms negatively. Overall they find that public firms perform better than private firms and this is explained by the different ways in which drivers function in a quoted versus a non quoted environment. Based on the presented literature it can be concluded that the effects of a listing on performance are mixed and it is unclear how the effect differs across different ownership types. Therefore the following hypothesis is formulated.

H1: A listing on a stock exchange does not have a significant effect on firm performance across different types of ownership

2.3 Ownership Concentration

12 treated as an endogenous variable. Based on the empirical literature discussed above the following hypothesis is proposed.

H2. There is a negative relationship between ownership concentration and firm performance.

2.4 Ownership Identity

Both theory (Jensen and Meckling 1976) and empirical findings (e.g. Andres 2008, Thomson and Pederson 2000 and Bhattacharya and Graham 2009) advocate that shareholders are differentiable and pursue different agendas. Thus categorizing ownership into different groups is useful in evaluating firm performance. Accordingly the effect of different types of shareholders on firm performance is examined. La Porta et al (1999) examined the relationship between ownership and control of the largest 27 wealthy economies and identified different types of ultimate ownership. These different types of ownership are family or individual, the government, an institutional investor such as a bank and widely held corporations which are non financial companies that have a stake in other companies. A corporation has a controlling shareholder if it has an interest of at least twenty percent. This measure is used as it is assumed this is usually enough to have effective control of a firm (La Porta et al 1999). The next section will discuss the empirical evidence per identified ownership type and its effect on firm performance.

Family and Individual

13 Entrenched families may extract private benefits from the firm and expropriate minority shareholders instead of maximizing firm value (Faccio et al 2001). Executive positions in the firm tend to be given to family members restricting the labor pool to a small group of perhaps average talented persons (Arosa and Maseda 2010). As large and undiversified investors, families might pursue risk reducing strategies by e.g. investing in projects uncorrelated to the firm’s core business or by seeking less risky forms of financing, in terms of higher default probability. This can obstruct the ability to raise external funds for investments projects and does not allow the firm to benefit from the higher debt tax shield. Both strategies impose a cost on well diversified minority shareholders (Andres 2008). The cost and benefits of family ownership have induced many authors to research the relation between family ownership and firm performance. Arosa and Maseda (2010) research the effect of firm performance and ownership concentration in family and non family firms using a sample of Spanish non listed SMEs. They find that performance differs depending on which generation manages the firm. First generation family firms show a positive effect at low levels of control rights and a negative effect at high levels of ownership concentration. Andres (2008) researches whether families as block holders are more successful than other controlling shareholders for a sample of German firms over the period 1998 through 2004. Their multivariate analyses show that firms with family block holders outperform firms with other types of block holders as well as widely held firms. Family ownership is the only variable showing positive and significant coefficients in their regressions. Sraer and Thesmar (2007) research the relationship on the French stock exchange between 1994 and 2000. They find that looking at accounting profitability; family firms significantly outperform non family firms. Employing a sample of 1672 non financial firms from 13 Western European Countries, Maury (2006) finds that family ownership results in a higher valuation and profitability (Tobin’s Q and return on assets) than ownership in non family firms. Barontini and Caprio (2006) also report a positive effect of family control for their sample of 675 listed companies in eleven European countries. Family controlled firms only seem to perform worse than non family firm in case the family is not part of the board.

14 successfully mitigate the agency problem. Based on the literature discussed above the following hypothesis is proposed:

H3 A family or individual as controlling shareholder has a positive impact on firm performance

State

Economic theory of privatization has brought forward two arguments to explain the inefficiency of government owned enterprises. (1) Political view, explains that interference of politicians in the decision making process affects the objectives set forth by management (Sheifer and Vishny 1994). The social / political goals set and pursued by politicians do not necessarily coincide with value maximization. Common political objectives are e.g. focused on employment and wages, national security, maximizing social welfare and providing low price goods and services (Boubakri et al 2008, Garcia and Ansón (2007). (2) Managerial

view, states that managers of government owned firms are not sufficiently monitored resulting

in an inefficient structure and high autonomy in decision making (Boubakri et al 2008). In addition to these arguments, agency problems may be more severe in government owned firms. The dual agency relations (citizens – governments and government – management), cause that normal citizens cannot sell the firm’s shares, the government may have political objectives and the firm may dependent on the government for funding and can therefore not face bankruptcy (Garcia and Ansón 2007). These factors can cause a firm to be inefficient and value decreasing. The empirical evidence on state ownership has largely focused on the effects of state privatization on performance. Using a sample of 245 privatized firms over the period 1980-2002 Boubakri et al (2008) research the extend of political connections in newly privatized firms. Based on accounting measures they find that political connected firms underperform their non connected counterparts. Boubakakri et al (2009) research the effects of privatization for a panel of 189 firms between 1984 and 2002. They find that state ownership negatively effects profitability and operating efficiency. Garcia and Ansón (2007) do not find medium-term post-privatization improvements in firm’s profitability but they do find significant improvements in profitability and efficiency in the long term.

15 theoretical and empirical considerations discussed above the following hypothesis is proposed.

H4 The state as controlling shareholder has a negative impact on firm performance

Institutional

Institutional ownership is often concentrated in large blocks of securities managed by an identifiable party (Bhattacharya and Graham 2009). Shleifer and Vishny (1997), state that the substantial amounts of investments made by institutional investors gives them a strong incentive to monitor and become involved shareholders. Subsequently firms that are characterized by high institutional ownership create an incentive for active behavior and an opportunity for institutional investors to influence company policy, strategy and performance. The empirical literature examining the relation between institutional investors and firm performance has produced mixed results. Using firm level data from listed companies in Finland, Bhattacharya and Graham (2009) show using three stage least squares that ownership concentration in Finland does not necessarily lead to a concentration of voting power of institutional investors. Therefore a simple ownership concentration index does not influence firm performance. However using different measures of voting power proxies lead to a positive effect between institutional ownership and firm performance. Cornett et al (2007) also confirm a positive relationship between institutional investor involvement and a firm’s operating cash flow returns. In addition they find that the type of institutional investor (pressure sensitive or pressure resistant) is important. Seifert et al (2005) research the relationship in four different countries, namely the United States, England, Germany and Japan. They find no consistent relationship between block holder / institutional ownership on performance across the four countries. The impact of block holders and institutions in the individual countries is mixed. A positive effect from both block holders and institutions is found in Germany, a negative effect is found in the U.K. and insignificant and unclear relationship are found in the U.S and Japan. In addition to the German evidence, Gorton and Schmid (2000) also find a positive effect of the influence of German banks on the performance of German companies. The mixed evidence presented above may indicate that the relationship is dependent on location. Based on the European evidence presented above, the following hypothesis is proposed:

16 Widely held Corporations

17 in alliances or joint ventures can reduce monitoring costs. Based on the presented literature above and the different performance variables discussed the following hypothesis is proposed:

H6 A widely held corporate investor as controlling shareholder has a negative impact on firm performance

3. Data and Methodology

In this section the data and methodology methods employed are discussed. Section 3.1 will discuss sample selection, data sources and ownership type. Section 3.2 will discuss methodology methods employed, dependent and control variables selected and section 3.3 will present the Hausman test of endogeinity. Section 3.4 will continue discussing the robustness tests and section 3.5 will end up with descriptive statistics.

3.1 Sample Selection and data sources

18 A complete overview of the number of observations collected per owner identity and listing status is provided in appendix A.

3.1.1 Ownership type

There is no official database of the ownership types identified in this study. Therefore, the level of difficulty of collecting data on these companies is high. In addition, given the lack of an agreed definition on the different type of ownership structures leads to the use of restrictive samples (see e.g. Andres 2008 and Sraer and Thesmar 2007). In this study the following definitions are employed for the different ownership structures identified; A family or individual is defined if the controlling shareholder is a person or a family, the government is defined if the controlling shareholder is the state, an institutional investor is defined if the controlling shareholder is a bank or pension fund etc. and finally a widely held corporation is defined if its controlling shareholder is another non financial company (La Porta et al 1999). A corporation has a controlling shareholder if it has an interest of at least twenty percent. This measure is used as it is assumed this is usually enough to have effective control of a firm (La Porta et al 1999). To ensure compliance with these conditions an extensive review of shareholding structures is conducted. In case there are multiple large block holders present within a single firm, the firm is classified according to the identity of its largest shareholder. 3.2 Methodology

19

(3.1)

(3.2)

There are two equations in this system set up. The first equation regresses firm performance on ownership concentration and the second equation capture the effect of ownership concentration on firm performance. In the equation for firm performance I control for listing, capital expenditures, growth opportunities and industry effects. In the ownership equation I control for listing, leverage, capital expenditures, size and liquidity. Growth opportunities (GROWTHOPP) and industry dummies (IND) are the unique exogenous variables in equation 3.1 and size (SIZE) and liquidity (LIQ) are the unique exogenous variables in equation 3.2. This uniqueness is helpful with checking and satisfying the order condition (Brooks 2008). It is found that the system is over identified and the use of 2SLS is permitted. The effects of listing on firm performance across different investor types and vice versa are also tested in this framework by replacing “CON” with one of the identified ownership types.

3.2.1 Dependent variables

20

3.2.3 Control Variables

21 A complete overview of all variables, their definitions and abbreviations are provided in appendix B.

3.3 Hausman Test

A Hausman test is employed to formally test for the presence of endogeinity. To be able to conduct a Hausman test one first needs to separately estimate the reduced form equations with OLS (Brooks 2008). The reduced form of equations 3.1 and 3.2 are:

(3.3)

(3.4)

The residuals of the reduced form equations are saved and added as an additional explanatory variable in the structural equations (equations 3.1 and 3.2). Another regression is run and if the coefficients of the residuals are significantly different from zero OLS results will be inconsistent and biased and the use of 2SLS is justified (Tsai and Gu 2007 and Brooks 2008). Because only one of the two techniques (OLS or 2SLS) may be appropriate, the regression results presented and discussed in section 4 will be based on the Hausman test results. In that 2SLS results will only be presented if the presence of endogeinity is proven for one of the identified ownership or performance variables. If endogeinity is not proven OLS results will be presented.

3.4 Robustness Tests

Next to estimating OLS and 2SLS regressions a random effects model is employed to investigate whether the results are robust to changes in estimation method. A Fixed effect model cannot be employed because the ownership concentration variable does not change over time making the fixed effect model unreliable (Andres 2008). Lastly a different performance measure namely organisational efficiency or “OE” is employed to investigate if the results are robust to a different performance measure. “OE” is calculated by scaling sales with the average number of employees in the sample period (Earle et al 2005).

3.5 Descriptive Statistics

22 empirical tests are conducted on 1244 observations due to the elimination of extreme data points and loss of data at the beginning of the sample year because several explanatory variables are calculated using their lagged values.

Both EMP and DIV have fewer observations due to data availability. The Jarque-Bera test shows evidence for non normality in each variable. However the central limit theorem states that for a sufficient large sample size the test statistics will asymptotically follow the appropriate distribution even in the absence of error normality (Brooks 2008). Thus, making the violation of normality assumption in this sample virtually inconsequential. In terms of performance, the average firm in the sample has a mean return of 6.6% (ROA) and 9.3% (ROE). The number of employees in the sample varies considerable with an average of 11880 and a maximum of 234000. All variables in the sample exhibit strong variations as shown by the large standard deviations. Another noteworthy characteristic is the average leverage level of 0.125 indicating that the firms in the sample do not rely strongly on long term debt financing.

Table 3.2 reports mean results for each identified shareholders group differentiating between listed and non listed companies. In terms of performance (ROA and ROE) it appears that non

Table 3.1

Variables Mean Median Maximum Minimum Std. Dev. Jarque-Bera Observations

ROA 0,066 0,070 0,818 -0,724 0,114 8060,557 1244 ROE 0,093 0,123 1,346 -2,650 0,319 43213,200 1244 LEV 0,125 0,087 0,647 0,000 0,138 490,109 1244 CAPEX 0,026 0,027 0,481 -0,692 0,097 5316,836 1244 GROWTHOPP 1,071 1,045 3,330 0,297 0,261 16317,120 1244 SIZE 19,853 19,851 24,373 15,346 1,925 9,093 1244 LIQ 0,205 0,143 0,908 0,000 0,198 374,256 1244 EMP 11880 2274 234000 27 30232 27711 1211 DIV -0,368 -0,348 0,762 -4,457 0,463 15661,260 1020 Firm Age (years) 57 33 327 1 58 1932,332 1244

Desciptive statistics of the collected sample

This table reports descriptive statistics of 1244 (after adjusting for outliers) ownership observations for 167 Dutch firms in the period 2000 – 2010. The variables listed in the first column are; ROA defined as EBIT scaled by total

assets; ROE defined as earnings after tax scaled by shareholder funds; LEV defined as long term debt scaled by total assets; CAPEX defined as capital expenditures scaled by total assets; GROWTHOPP defined as Sales_0/Sales_(-1); SIZE defined as natural logarithm of total assets; LIQ; defined as cash and equivalents scaled

23 listed firms outperform listed firms. In addition the identity of the controlling shareholder is important. Family and institutional controlled firms outperform both state and corporate controlled firms. Corporate controlled listed firms are low performers with a mean return of -4.7% compared to 6.2% in family controlled listed firms.

State controlled firms exhibit a higher level of leverage as compared to the other identities. The state as controlling shareholder is active in stable and high demand industries (utilities, gas and oil) allowing these companies to have a higher capital structure than other firms. In addition state controlled firms are on average larger in size then any of the other identified ownership types. Firms listed on a Dutch stock exchange employ more staff than non listed firms. Although not reported the standard deviation of employment in family firms is lower compared to other shareholder identities indicating that family ownership leads to reduced levels of staff turnover and higher employment security as suggested by Ward (1988). Dividend payout ratio is highest in family non listed and institutional non listed firms suggesting that these firms potentially suffer from expropriation of minority shareholders in which funds are transferred out of the firm by means of dividends. With regard to age, it is noted that family, institutional and corporate controlled firms are on average 53, 69 and 47 years old compared to an average of 31 years in state controlled firms suggesting that all owner identities are well established.

Table 3.2

Variables ROA ROE LEV CAPEX GROWTHOPP SIZE LIQ EMP DIV AGE

FAM Total 0,080 0,122 0,100 0,038 1,092 19,407 0,183 8005 -0,305 53 Listed 0,062 0,033 0,108 0,038 1,104 19,162 0,216 9638 -0,274 45 Non-listed 0,095 0,193 0,094 0,038 1,082 19,601 0,157 6218 -0,574 59 STATE Total 0,050 0,068 0,218 0,016 1,058 21,152 0,278 7771 -0,388 31 Listed 0,063 -0,089 0,288 -0,024 1,032 23,375 0,311 91315 -0,316 9 Non-listed 0,049 0,076 0,214 0,018 1,060 21,041 0,276 3255 -0,394 32 INST Total 0,058 0,088 0,110 0,015 1,053 19,222 0,181 9810 -0,322 69 Listed 0,049 0,069 0,116 0,015 1,053 19,216 0,183 11465 -0,293 70 Non-listed 0,104 0,184 0,079 0,020 1,052 19,254 0,171 1535 -0,605 62 CORP Total 0,052 0,072 0,039 0,010 1,078 19,768 0,296 2943 -0,116 47 Listed -0,047 -0,252 0,046 -0,041 1,037 18,989 0,414 3181 -0,055 91 Non-listed 0,082 0,168 0,037 0,026 1,090 20,001 0,260 2771 -0,243 33

Descriptive statistics per identified ownership identitity

This table reports descriptive statistics on each of the identified ownership types; family or individual “FAM”, government “STATE, institutional “INST” and widely held corporation “CORP” in the Netherland for the period 2000 - 2010. The variables listed in the first column are; ROA defined as EBIT scaled by total assets; ROE defined as earnings after tax scaled by

shareholder funds; LEV defined as long term debt scaled by total assets; CAPEX defined as capital expenditures scaled by total assets; GROWTHOPP defined as Sales_0/Sales_(-1); SIZE defined as natural logarithm of total assets; LIQ; defined as cash and equivalents scaled by current assets; DIV defined as dividend paid scaled by earnings after tax; EMP defined as the

24 Multicollinearity

Before performing a regression analyses it is important to look for the presence of multicollinearity between the explanatory variables (Brooks 2008). Table 3.3 reports simple correlations for all of the variables employed in the regression analyses. Consistent with Battacharya and Graham (2009) a positive correlation is found between sales growth and both performance variables (ROA and ROE). In addition a negative correlation is reported between leverage and both performance variables. The highest observed correlations between the explanatory variables are found between GROWTHOPP and CAPEX (0.305) and between SIZE and LEV (0.297). Correlations above 0.7 should be taken separately and transformed into a ratio and only the ratio and not the individual variables need to be included in the regression (Brooks 2008). The correlations found are however sufficiently small that the presence of multicollinearity can be reasonably ignored.

4.0 Results

In this section the results obtained after performing both OLS and 2SLS regression analyses will be discussed. Section 4.1 will discuss the results based on ownership concentration. Section 4.2 will discuss the results per owner identity and section 4.3 will end up with the robustness results.

4.1 Ownership Concentration

As reported in appendix C, the Hausman test results show that the coefficient of CON_resd is significantly different from zero. The endogeinity of concentrated ownership is therefore proven and the use of 2SLS in equation 3.1 is justified. The coefficient of PERF_CON_resd is not significantly different from zero indicating that the application of OLS in equation 3.2 is sufficient to produce consistent and unbiased estimates. To save space, only the results based on the Hausman test are discussed. From table 4.1 it is clear that there is a significant negative

25 effect (-0.144 for ROA and -0.544 for ROE) at the 0.01 significance level of a listing on firm performance for concentrated ownership. The negative effects of a listing on firm performance are consistent with the evidence of Pagano et al (1996) it however contradict the evidence of Schouben and van Hulle (2008). The negative effects found of a listing on firm performance for concentrated ownership can be explained by the benefits of control and the availability of information discussed in the literature review. A listing increases the amount of information that is publicly available and investors are thus better informed about the firm prospects, its strategy, the influence of controlling shareholders and the possible private benefits they enjoy. Since private benefits of control are enjoyed solely by the controlling party (Ehrhardt and Lahr 2008) new investors aware of the influence of controlling shareholders will be reluctant to invest. This reluctance has an adverse affect on firm performance. The negative effects of a listing on ownership concentration can be explained by the benefits of diversification. In which a stock exchange allows large or concentrated shareholders to diversify its holdings in order to obtain a more diversified portfolio (Franks and Mayer 1994). Based on the reported results the predicted insignificant effect of a listing on firm performance across concentrated ownership in hypothesis one is rejected.

27

Table 4.1

DEPENDENT ROA ROE CON CON

(2SLS) (2SLS) (OLS) (OLS) Intercept 0,275 0,925 1,750 1,729 (4,876) *** (5,060) *** (14,848) *** (14,521) *** CON -0,231 -0,881 -(3,868) *** -(4,558) *** ROA -0,015 -(0,135) ROE -0,047 -(1,155) LIST -0,144 -0,544 -0,542 -0,546 -(4,473) *** -(5,199) *** -(24,054) *** -(24,046) *** LEV -0,060 -0,221 -0,123 -0,128 -(1,772) * -(2,026) ** -(1,465) -(1,524) CAPEX 0,564 1,541 0,110 0,172 14,007 *** (11,811) *** (0,857) (1,346) GROWTHOPP 0,015 0,042 (0,991) (0,835)

IND yes yes

SIZE -0,038 -0,037 -(6,268) *** -(5,980) *** LIQ 0,084 0,079 (1,506) (1,421) R squared -0,315 -0,760 0,337 0,338 Adjusted R-squared -0,326 -0,776 0,334 0,335

Ownership Concentration and Firm Performance

This table reports 2SLS results on the relation between ownership concentration and firm performance and OLS results on the relation between firm performance and ownership concentration for Dutch listed and non listed companies over the period 2000-2010. Dependent variables are ROA defined as EBIT scaled by total assets, ROE

defined as earnings after tax scaled by shareholder funds and CON is a dummy variable indicating concentrated ownership. LIST is a dummy variable indicating whether a firm is listed on a Dutch stock exchange or not; LEV defined as long term

debt scaled by total assets; CAPEX defined as capital expenditures scaled by total assets; GROWTHOPP defined as Sales_0/Sales_(-1); IND is a industry dummy based on the 2 digit SIC codes; SIZE is defined as natural logarithm of total assets and LIQ; is defined as cash and equivalents scaled by current assets. The figures in parentheses

represent t-statistics

*** indicates a significance level of 1% ** indicates a significance level of 5%

28 4.2 Owner Identity

Family and Individual

As reported in appendix C the Hausman test results show that the coefficients for both FAM_resd and PERF_FAM_resd are significantly different from zero at the 0.01 significance level. The endogeinity of family ownership and firm performance is therefore evidenced and the application of 2SLS in equation 3.1 and 3.2 is justified. Table 4.2 reports the results of 2SLS regressions for both equations of family ownership on different firm characteristics. In the first two columns ROA and ROE are used as dependent variable and in column 3 and 4 a dummy variable representing family ownership is used as dependent variable. A listing on a Dutch stock exchange has a significant negative effect on both family firm performance and family ownership. The negative effect found on family ownership is consistent with the benefits of diversification in which large owners diversify their holdings via a stock exchange (Franks and Mayer 1994). The negative effect of a listing on family firm performance is explained by the information segregation discussed in the literature review. A listing on a stock exchange increases the amount of public information available of a firm. Investors are better informed about the firm’s strategy, its shareholders, their influence and the private benefits they enjoy. The increased information may make them reluctant to invest because the possibility of expropriation in a firm controlled by a single family with substantial private benefits is high. In sum, an investor may not be willing to risk and trust his investment capital to a single controlling shareholder. Especially if one considers the numerous other investments available to investors on the equity market that are not characterized by concentrated ownership and high private benefits of control. These factors may cause a listing to negatively affect firm performance. The results found on the effects of a listing on family firm performance are inconsistent with the results predicated in hypothesis one. The predicted insignificant effect in hypothesis one is therefore rejected.

30

Table 4.2

DEPENDENT ROA ROE FAM FAM

(2SLS) (2SLS) (2SLS) (2SLS) Intercept 0,167 0,525 1,858 2,324 (4,863) *** (0,112) *** (9,490) *** (6,426) *** FAM -0,185 -0,733 -(3,485) *** -(4,218) *** ROA 3,628 (2,973) *** ROE 1,555 (2,411) ** LIST -0,083 -0,315 -0,221 -0,153 -(4,372) *** -(5,117) *** -(5,429) *** -(2,254) ** LEV -0,033 -0,123 -0,139 -0,122 -(1,057) -(1,225) -(1,024) -(0,789) CAPEX 0,631 1,805 -1,571 -1,883 (14,107) *** (12,366) *** -(2,237) ** -(1,906) * GROWTHOPP 0,013 0,035 (0,871) (0,714)

IND yes yes

SIZE -0,075 -0,095 -(5,769) *** -(4,241) *** LIQ -0,042 -0,022 -(0,425) -(0,188) R squared -0,294 -0,758 -0,294 -0,554 Adjusted R-squared -0,305 -0,773 -0,300 -0,561

Family Ownership and Firm Performance

This table reports 2SLS results on the relation between firm performance and family ownership and vice versa for Dutch listed and non listed companies over the period 2000-2010. Dependent variables are ROA defined as EBIT scaled by total assets, ROE defined as earnings after tax scaled by shareholder funds and FAM is a dummy variable indicating family ownership. LIST is a dummy variable indicating whether

a firm is listed on a Dutch stock exchange or not; LEV defined as long term debt scaled by total assets; CAPEX defined as capital expenditures scaled by total assets; GROWTHOPP defined as Sales_0/Sales_(-1); IND is a industry dummy based on the 2 digit SIC codes; SIZE is defined as natural logarithm of total assets and LIQ; is defined as cash and equivalents scaled by current assets. The figures in

parentheses represent t-statistics *** indicates a significance level of 1%

31 State

33

Table 4.3

DEPENDENT ROA ROE STATE STATE

(2SLS) (2SLS) (2SLS) (2SLS) Intercept 0,027 -0,031 -0,729 -1,377 (0,923) -(0,300) -(3,280) *** -(3,550) *** STATE 0,456 1,813 (2,982) *** (3,360) *** ROA -6,212 -(4,486) *** ROE -2,351 -3,399 *** LIST 0,054 0,226 -0,366 -0,454 (1,916) * (2,275) ** -(7,939) *** -(6,236) *** LEV -0,104 -0,409 0,192 0,201 -(2,089) ** -(2,323) ** (1,251) (1,211) CAPEX 0,620 1,763 3,354 3,418 (12,527) *** (10,088) *** (4,207) *** (3,225) *** GROWTHOPP 0,001 -0,012 (0,072) -(0,203)

IND yes yes

SIZE 0,069 0,094 (4,670) *** (3,906) *** LIQ -0,056 -0,053 -(0,504) -(0,421) R squared -0,667 -1,654 -3,437 -3,755 Adjusted R-squared -0,682 -1,677 -3,459 -3,778

This table reports 2SLS results on the relation between firm performance and state ownership and vice versa for Dutch listed and non listed companies over the period

2000-2010. Dependent variables are ROA defined as EBIT scaled by total assets, ROE defined as earnings after tax scaled by shareholder funds and STATE is a

dummy variable indicating government ownership. LIST is a dummy variable indicating whether a firm is listed on a Dutch stock exchange or not; LEV defined as long term debt scaled by total assets; CAPEX defined as capital expenditures scaled

by total assets; GROWTHOPP defined as Sales_0/Sales_(-1); IND is a industry dummy based on the 2 digit SIC codes; SIZE is defined as natural logarithm of total

assets and LIQ is defined as cash and equivalents scaled by current assets. The figures in parentheses represent t-statistics

*** indicates a significance level of 1% ** indicates a significance level of 5%

*indicates a significance level of 10%

34 Institutional

The Hausman test results in appendix C indicate that both INST_resd and PERF_INST_resd are significantly (at the 0.01 and 0.05 significance level) different from zero. The presence of endogeinity in institutional ownership and performance is therefore proven and the use of 2SLS is justified. Table 4.4 presents the 2SLS regression results in which ROA and ROE are the dependent variables in columns 1 and 2 and a dummy variable “INST” representing institutional ownership is the dependent variable in columns 3 and 4. A listing has a significant positive impact on institutional ownership but an insignificant effect on institutional firm performance suggesting that institutional equity is invested via exchange listed firms.

35 firm performance are inconsistent with hypothesis five. The expected positive effects of institutional ownership are therefore rejected.

Table 4.4

Institutional Ownership and Firm Performance

DEPENDENT ROA ROE INST INST

(2SLS) (2SLS) (2SLS) (2SLS) Intercept 0,087 0,212 0,435 0,705 (3,512) *** (2,359) ** (3,937) *** (3,429) *** INST -0,381 -1,542 -(2,766) *** -(3,107) *** ROA 1,349 (1,959) * ROE 0,781 2,129 ** LIST 0,018 0,086 0,114 0,158 (0,978) (1,299) (4,990) *** (4,084) *** LEV -0,041 -0,161 0,013 0,043 -(1,103) -(1,205) (0,173) (0,493) CAPEX 0,523 1,375 -0,842 -1,262 (11,021) *** (8,034) *** -(2,122) ** -(2,247) ** GROWTHOPP 0,000 -0,015 (0,025) -(0,252)

IND yes yes

SIZE -0,024 -0,038 -(3,292) *** -(2,983) *** LIQ 0,004 0,035 (0,070) (0,527) R squared -0,671 -1,772 -0,146 -0,396 Adjusted R-squared -0,686 -1,797 -0,152 -0,403

This table reports 2SLS results on the relation between firm performance and institutional ownership and vice versa for Dutch listed and non listed companies over the period 2000-2010. Dependent variables are ROA defined as EBIT scaled by total assets, ROE defined as earnings after tax scaled by shareholder funds and INST is a dummy variable indicating institutional ownership. LIST is a dummy variable indicating whether a firm is listed on a Dutch stock exchange or not; LEV

defined as long term debt scaled by total assets; CAPEX defined as capital expenditures scaled by total assets; GROWTHOPP defined as Sales_0/Sales_(-1); IND is a industry dummy based on the 2 digit SIC codes; SIZE is defined as natural

logarithm of total assets and LIQ is defined as cash and equivalents scaled by current assets. The figures in parentheses represent t-statistics.

36 Corporate

The Hausman test results in appendix C show that the CORPF_resd is not significantly different from zero. The presence of endogeinity is therefore not evidenced in equation 3.1 and the use of OLS is justified. The PERF_CORP_resd is only significantly different from zero when ROE is regressed on corporate ownership and not when ROA is regressed on corporate ownership. Therefore the use of 2SLS is only justified in equation 3.2 when ROE is regressed on corporate ownership and OLS is employed when ROA is regressed on corporate ownership. Table 4.5 reports the OLS and 2SLS estimates based on the Hausman test results discussed above. In the first two columns ROA and ROE are used as dependent variable and in columns 3 and 4 corporate ownership is used as dependent variable. A listing on a stock exchange has a significant negative impact on both corporate firm performance and corporate ownership. The negative effects of a listing on corporate firm performance might be explained by the private benefits of control discussed in the literature review. A listing increases the available information and scrutiny on listed firms. Investors are thus better informed on the firm’s strategy, its policies, shareholder influence and the private benefits of control they enjoy. Investors may be reluctant to invest if they believe that the benefits of control associated with corporate ownership come at a cost of efficiency as discussed by Burkhart et al (2003) or may even result in the expropriation of minority shareholder as explained by Shleifer and Vishny 1997). In addition the investment universe available to an investor is enormous and it is relative easy for an investor to find an equivalent investment that that not characterized by control of corporate ownership. An investor can therefore quite easy avoid the possible negative effects associated with corporate ownership. The negative effect of a listing on corporate ownership suggests that the stock market is used by corporate shareholders to diversify or sell their large shareholdings (Franks and Mayer 1994). The predicted insignificant effect of a listing on firm performance in hypothesis one is therefore rejected.

38

Table 4.5

DEPENDENT ROA ROE CORP CORP

(OLS) (OLS) (OLS) (2SLS)

Intercept 0,077 0,161 0,086 -0,195 (4,671) *** (3,473) *** (1,228) -(1,202) CORP -0,014 -0,022 -(1,149) -(0,623) ROA -0,074 -(1,113) ROE -0,600 -(2,069) ** LIST -0,026 -0,089 -0,095 -0,147 -(3,830) *** -(4,570) *** -(7,117) *** -(4,831) *** LEV 0,007 0,038 -0,250 -0,318 (0,306) (0,630) -(5,003) *** -(4,568) *** CAPEX 0,559 1,526 -0,107 0,755 (18,501) *** (17,970) *** -(1,401) (1,700) * GROWTHOPP 0,003 -0,006 (0,236) -(0,202)

IND yes yes

SIZE 0,002 0,021 (0,643) (2,043) ** LIQ 0,120 0,052 (3,605) *** (0,983) R squared 0,262 0,257 0,075 -0,358 Adjusted R-squared 0,256 0,251 0,071 -0,365

Corporate Ownership and Firm Performance

This table reports OLS and 2SLS results on the relation between firm performance and corporate ownership and vice versa for Dutch listed and non listed companies over the period 2000-2010. Dependent variables are ROA defined as EBIT scaled by total assets, ROE defined as earnings after tax scaled by shareholder funds and

CORP is a dummy variable indicating corporate ownership. LIST is a dummy variable indicating whether a firm is listed on a Dutch stock exchange or not; LEV

defined as long term debt scaled by total assets; CAPEX defined as capital expenditures scaled by total assets; GROWTHOPP defined as Sales_0/Sales_(-1); IND is a industry dummy based on the 2 digit SIC codes; SIZE is defined as natural

logarithm of total assets and LIQ is defined as cash and equivalents scaled by current assets. The figures in parentheses represent t-statistics

*** indicates a significance level of 1% ** indicates a significance level of 5%

39 4.3 Robustness Tests

Random Effects

This section will test if the relation between listing status and firm performance across different ownership types discussed in the previous section is robust to changes in estimation method. Since only few companies change their ownership type over the sample period fixed effects cannot be identified (Andres 2008). Therefore the results a re-estimated using a pooled random effects or a 2SLS random effects model3. The results from these regressions are reported in appendix D. Table D1 presents the results between listing status and firm performance for concentrated ownership. The results are not materially different; the effects of a listing are still significant and negative when employing both firm performance and concentrated ownership as dependent variable. The relation between ownership concentration and firm performance and vice versa has also not changed significantly. The relation is still significant and negative when employing performance as dependent variable. However when ownership concentration is the dependent variable and ROE the explanatory variable the relation has become significant. The relation remains insignificant and negative when ROA is the explanatory variable. Table D2 reports the results between listing status and firm performance across family ownership. The effects of a listing do not materially differ. The relation is still negative and significant when both family firm performance and family ownership are used a dependent variable. The results on the relation between family ownership and firm performance in the random effects model are similar to those reported in section 4. The only difference found in the random effects model is that the relation has become insignificant when family ownership is used as dependent variable. Table D3 reports the 2SLS random effects results on the relation between listing status and firm performance for state ownership. The effects of a listing on state firm performance are not similar to the results in section 4. The relation in the random effects model has become negative and insignificant. The effects of a listing on state ownership are however similar to that reported in section 4.The relation between state ownership and firm performance and vice versa has also changed. The relationship is insignificant in the random effect model expect when ROE is used an explanatory variable. The sign of the coefficients are however consistent with those reported in section 4. Table D4 reports the 2SLS random effect results on the relation between

3

40 listing status and firm performance for institutional ownership. The effects of a listing on institutional firm performance are still insignificant. However, the effects of a listing on institutional ownership in the random effect model differ in that the relation has become insignificant except when ROE is used as explanatory variable. The relation between institutional ownership and performance and vice versa has become insignificant in the random effects model except when ROE is used a dependent variable. The sign of the coefficients are however similar to those reported in section four expect when ROA is used as dependent variable. Table D5 reports random effects results on the relation between listing status and firm performance for corporate ownership. The effects of a listing on corporate firm performance and corporate ownership are similar to that reported in section 4. The relation however has become insignificant when ROE is used as explanatory variable. The sign of the coefficient does however not change. The relation between corporate ownership and firm performance and vice versa has become significant in the random effects model. The sign of coefficients however, do not change to those reported in section 4 except when ROE is the explanatory variable.

In sum, based on the random effects results the relation between listing status and firm performance is robust to changes in estimation method for ownership concentration, family ownership, institutional ownership and corporate ownership. When ownership is used as dependent variable the effects of a listing are robust for ownership concentration, family ownership, state ownership, institutional ownership with ROA as explanatory variable and corporate ownership with ROA as explanatory variable. The relation between ownership type and firm performance is robust to changes in estimation method for ownership concentration, family ownership and institutional ownership with ROE as dependent variable. When ownership is used as dependent variable the results are robust for ownership concentration with ROA as explanatory variable and for state ownership with ROE as explanatory variable.

Organizational Efficiency

41 efficiency for different ownership structures and on the relation between listing status and ownership type are consistent with the results in section 4 for concentrated ownership, family ownership and state ownership. The effects of a listing differ for institutional ownership in that the relationship is significant when OE is used a dependent variable and INST explanatory variable. The sign of the coefficients are however consistent with the results presented in section 4. The effects of a listing on corporate organizational efficiency differ to those presented in section 4 in that the relation has become insignificant and positive when OE is used as dependent variable and CORP as explanatory variable. The relationship between and organizational efficiency ownership concentration, family ownership, state ownership and vice versa are all consistent with the results presented in section 4. Institutional ownership differs in that the relationship is insignificant when INST is used as dependent variable and OE as explanatory variable. The sign of the coefficients are however consistent with the results presented in section 4. The results when corporate ownership is employed differ to those in section 4 in that the results are now significant and positive when CORP is the explanatory variable and OE the dependent variable. The ownership equation using CORP as the dependent variable is consistent with the results presented in section 4.

In sum, the relation between listing status and organizational efficiency and between listing status and ownership type are robust for concentrated ownership, family ownership and state ownership. The relation between firm performance and ownership type and vice versa are robust for ownership concentration, family ownership and state ownership.

5.0 Conclusion

42 CAPEX GROWTHOPP, IND, SIZE and LIQ) are employed. This framework is also employed to test for differences across the different types of shareholders. The results from the Hausman test show strong evidence of endogeinity between firm performance (measured by ROA and ROE) and ownership concentration. The magnitude of the effect differs with respect to the type of ownership used.

A significant negative relationship is found between listing status and firm performance across concentrated ownership, family ownership and corporate ownership. The increased availability of information on a stock exchange allows investors to be better informed about a firm’s strategy, its prospects, shareholder influence and the private benefits of control they enjoy. These benefits of control that accrue to large shareholders might come at the cost of efficiency and increase the likelihood of expropriation of minority shareholders. These factors may cause an investor to be reluctant to invest and subsequently has an adverse effect on firm performance. The effects of a listing on concentrated ownership, family ownership and corporate ownership is negative suggesting that the stock market is used by these ownership types to diversify shareholdings. In contrary to the discussed ownership types a listing has a significant positive effect on state firm performance. The effect however becomes negative when state ownership is used as dependent variable. These results indicate that a listing is used by government to withdraw from state controlled firms and this has a significant positive effect on firm performance. The effects of a listing on state performance and state ownership are consistent with the empirical literature on privatization (Boubakakri et al 2009). A listing has an insignificant effect on institutional firm performance but a significant positive effect on institutional ownership suggesting that institutional investors prefer to invest in exchange listed companies. The results found on the effects of a listing on firm performance across ownership type are fairly robust to changes in estimation method and a different performance variable.

43 possible interpretation of the presented results leads to the conclusion that shareholder value does not appear to be a universal goal of company strategy. Although goal structures as such have not been examined, differences in profitability and organizational efficiency across ownership types appear to be inconsistent with value maximization. This is however consistent with the notion that different shareholders groups pursue different agenda’s. This implies that ownership structure matters for firm strategy. As discussed in the Netherlands effective control lies with large shareholders and in such a set up firm strategy needs to match corporate structure and thus the backing of large shareholder to be successful. However in order to avoid expropriation of minority shareholders and achieve value maximization for all shareholders involved ownership structure needs to be restructured by means of leveraged buyouts, privatizations etc. Stock exchanges could play a vital role in this by introducing policies that prevent shareholders from obtaining controlling positions and thus limiting the amount of equity owned by a single shareholder.

5.1 Limitations

There are some limitations in this study that have to be considered. The availability of financial data of non listed companies and the identification of ownership structures is limited making it difficult to get a reliable sample size. Including other nations in the sample would solve this, but will not allow us to research the effect in a single country. In addition “Orbis” the main database for this study only provides financial and ownership data for a limited time span which does not allow us to investigate if the findings hold over longer time periods. The different estimation methods, different definitions of concentrated ownership applied and the ongoing discussion about possible endogeinity in existing literature reduce the validity of all claims presented and make it harder to compare results. A final limitation of this study is that the definition of the identified shareholder groups might be too broad and general resulting in conflicting results. Future studies should therefore consider classifying the type of shareholder to a more strict and specific definition. Family ownership could e.g. be classified according to founder controlled firms and descendant controlled firms.

5.2 Extensions

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