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Ownership Structure and Corporate Performance

A Panel Data Analysis for the German Market

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Katinka Wölfer

The book sheds new light on the relation between equity ownership and corporate performance. Empirical studies presented in this book are based on a large panel data set and model the impact of concentrated ownership on performance, with nonlinear effect shapes being estimated through cubic splines. The final model incorporates the identity of owners into the investigation and illustrates the differing performance effects of various large shareholders. This approach adds to the understanding of ownership effects as previous research was mainly concerned with the role of ownership concentration and neglected the identity of blockholders as an equally important dimension of ownership. The new perspective will give fresh impetus to researchers, corporate decision makers and public policy.
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1 Introduction

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1    Introduction

1.1      Motivation and Objectives

The term ownership conceptually refers to two formal rights: the right to control the firm and the right to claim the firm’s residual earnings (Hansmann, 1988). Formal control does not necessarily mean effective control as formal control generally involves only the right to elect the firm’s supervisory board and to vote directly on a few fundamental matters, such as, for example, amendments to the statutes, dividend payouts, or a merger or dissolution of the firm. If shareholders are too numerous and too dispersed, it might not be possible to exercise even these limited control rights meaningfully, with the result that managers possess substantial autonomy. This raises the concern that managers might use their power to pursue own interests, oblivious to the welfare of the owners. Berle and Means (1932) investigated the issue of separating ownership from control and provided an early statement of the principal-agent problem: Those who control a corporation “can serve their own pockets better by profiting at the expense of the company than by making profits for it” (p. 122). Since Jensen and Meckling (1976) picked up the debate and developed a formal concept of the principal-agent conflict between shareholders and managers, a whole branch of research has evolved investigating the issue of separating control from ownership and its resulting impact on corporate performance.

Various arguments have been put forward supporting the notion that the structure of ownership will have significant implications for the performance...

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