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Ownership Structure and Corporate Performance

A Panel Data Analysis for the German Market


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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3 Theoretical Framework


3      Theoretical Framework

3.1      Introduction

The following chapter builds the theoretical framework around the research question of whether and how ownership structure affects performance.40 The goal is to offer a rich theoretical analysis of the role of ownership in explaining variations in corporate performance. As the discussion is mainly grounded in the fundamental conflict between managers and owners when the former have the control, but the latter bear most of the wealth effects, Section 3.2 elaborates on agency theory, its consequences and the role of ownership structure as a mechanism to overcome shareholder-management conflicts. Building on agency effects as well as other, nonagency related arguments, Sections 3.3 and 3.4 concentrate on the concepts of ownership concentration and owner identity and provide theoretical explanations for the link between ownership and performance.

3.2      Theory Base

The foundation for research on corporate ownership structure is provided by the work of Berle and Means (1932) whose central premise is the recognition of problems resulting from the separation of ownership and control. Jensen and Meckling (1976) later expand these ideas through the introduction of agency theory, which will be briefly recapped below.

3.2.1      Early Approaches and Roots of Agency Theory

Until the early twentieth century, research on the theory of the firm models the firm as a black box operated so as to meet the marginal conditions with respect to cost and revenue, thereby maximizing profits.41 Internal complexities of organizations are largely ignored....

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