Advertisement

Review of Quantitative Finance and Accounting

, Volume 52, Issue 2, pp 573–642 | Cite as

Does stable ownership create value? Evidence from the global financial crisis

  • Andy Lardon
  • Christof Beuselinck
  • Marc DeloofEmail author
Original Research

Abstract

We investigate the value of stable ownership for a sample of European firms using the global financial crisis as an exogenous shock and pre-and post-crisis years as benchmark periods. Consistent with the argument that stable ownership allows managers to focus on the creation of long-term value, we find that stable ownership resulted in higher stock returns and a higher market-to-book ratio during the crisis. This positive effect of stable ownership was not reversed after the crisis. Stable institutional blockholdings were more valuable in countries with weaker investor protection. However, the positive effect does not apply to firms in which a family is the largest blockholder. Finally, we also find that ownership stability was associated with a higher level of investments, illustrating that stable ownership affects real corporate decisions.

Keywords

Ownership stability Family ownership Institutional ownership Global financial crisis Firm value Investments 

JEL Classification

G01 G32 

Notes

Acknowledgments

We are grateful to two anonymous reviewers, Christina Atanasova, Christophe Boone, Andriy Boytsun, Eric de Bodt, Corneel Defrancq, Marc Jegers, Ann Jorissen, Eddy Laveren, Sophie Manigart, Gianluca Mattarocci, Armin Schwienbacher, Tensie Steijvers, Christophe Van der Elst, and seminar participants at the Australasian Finance and Banking Conference in Sydney, the AIDEA conference in Lecce, the Corporate Finance Day in Ghent, the Skema Business School (Lille) and the Politecnico de Milano for helpful comments and suggestions. We also thank Christine Lippens for her help with data processing. Financial support from the Flemish Agency for Innovation by Science and Technology (IWT, Grant No. SBO 90061) is gratefully acknowledged. All remaining errors are ours.

References

  1. Admati AR, Pfleiderer P (2009) The “Wall Street Walk” and shareholder activism: exit as a form of voice. Rev Financ Stud 22:2645–2685CrossRefGoogle Scholar
  2. Anderson RC, Reeb DM (2003) Founding-family ownership and firm performance: evidence from the S&P 500. J Financ 58:1301–1328CrossRefGoogle Scholar
  3. Bae KH, Baek JS, Kang JK, Liu WL (2012) Do controlling shareholders’ expropriation incentives imply a link between corporate governance and firm value? Theory and evidence. J Financ Econ 105:412–435CrossRefGoogle Scholar
  4. Baek JS, Kang JK, Park KS (2004) Corporate governance and firm value: evidence from the Korean financial crisis. J Financ Econ 71:265–313CrossRefGoogle Scholar
  5. Barro RJ (1990) The stock market and investment. Rev Financ Stud 3:115–131CrossRefGoogle Scholar
  6. Berglöf E, Claessens S (2006) Enforcement and good corporate governance in developing countries and transition economies. World Bank Res Obs 21:123–150CrossRefGoogle Scholar
  7. Brockman P, Yan X (2009) Block ownership and firm-specific information. J Bank Financ 33:308–316CrossRefGoogle Scholar
  8. Burkart M, Gromb D, Panunzi F (1997) Large shareholders, monitoring, and the value of the firm. Q J Econ 112:693–728CrossRefGoogle Scholar
  9. Bushee BJ (1998) The influence of institutional investors on myopic R&D investment behavior. Account Rev 73:305–333Google Scholar
  10. Bushee BJ, Noe CF (2000) Corporate disclosure practices, institutional investors, and stock return volatility. J Account Res 38:171–202CrossRefGoogle Scholar
  11. Campello M, Graham JR, Harvey CR (2010) The real effects of financial constraints: evidence from a financial crisis. J Financ Econ 97:470–487CrossRefGoogle Scholar
  12. Cella C, Ellul A, Giannetti M (2013) Investors’ horizons and the amplification of market shocks. Rev Financ Stud 26:1607–1648CrossRefGoogle Scholar
  13. Chen X, Harford J, Li K (2007) Monitoring: which institutions matter? J Financ Econ 86:279–305CrossRefGoogle Scholar
  14. Chu T, Haw IM, Lee BBH, Wu W (2014) Cost of equity capital, control divergence and institutions: the international evidence. Rev Quant Finan Acc 43:483–527CrossRefGoogle Scholar
  15. Claessens S, Djankov S, Fan JRH, Lang LHP (2002) Disentangling the incentive and entrenchment effects of large shareholdings. J Financ 57:2741–2771CrossRefGoogle Scholar
  16. Coles JL, Lemmon ML, Meschke JF (2012) Structural models and endogeneity in corporate finance: the link between managerial ownership and corporate performance. J Financ Econ 103:149–168CrossRefGoogle Scholar
  17. Demsetz H, Lehn K (1985) The structure of corporate ownership: causes and consequences. J Political Econ 93:1155–1177CrossRefGoogle Scholar
  18. Demsetz H, Villalonga B (2001) Ownership structure and corporate performance. J Corp Financ 7:209–233CrossRefGoogle Scholar
  19. Dimson E (1979) Risk measurement when shares are subject to infrequent trading. J Financ Econ 7:197–226CrossRefGoogle Scholar
  20. Dlugosz J, Fahlenbrach R, Gompers P, Metrick A (2006) Large blocks of stock: prevalence, size, and measurement. J Corp Financ 12:594–618CrossRefGoogle Scholar
  21. Duchin R, Ozbas O, Sensoy BA (2010) Costly external finance, corporate investment, and the subprime mortgage credit crisis. J Financ Econ 97:418–435CrossRefGoogle Scholar
  22. Durnev A, Kim EH (2005) To steal or not to steal: firm attributes, legal environment, and valuation. J Financ 60:1461–1493CrossRefGoogle Scholar
  23. Edmans A (2009) Blockholder trading, market efficiency, and managerial myopia. J Financ 64:2481–2513CrossRefGoogle Scholar
  24. Elyasiani E, Jia JJ (2010) Distribution of institutional ownership and corporate firm performance. J Bank Financ 34:606–620CrossRefGoogle Scholar
  25. Elyasiani E, Jia JJ, Mao CX (2010) Institutional ownership stability and the cost of debt. J Financ Mark 13:475–500CrossRefGoogle Scholar
  26. Faccio M, Lang LHP (2002) The ultimate ownership of Western European corporations. J Financ Econ 65:365–395CrossRefGoogle Scholar
  27. Faccio M, Marchica MT, Mura R (2011) Large shareholder diversification and corporate risk-taking. Rev Financ Stud 24:3601–3641CrossRefGoogle Scholar
  28. Fama EF, French KR (1988) Permanent and temporary components of stock prices. J Political Econ 96:246–273CrossRefGoogle Scholar
  29. Fama EF, French KR (1995) Size and book-to-market factors in earnings and returns. J Financ 50:131–155CrossRefGoogle Scholar
  30. Fox J, Lorsch JW (2012) What good are shareholders? Harv Bus Rev 90:48–57Google Scholar
  31. Franks J, Mayer C, Volpin P, Wagner HF (2012) The life cycle of family ownership: international evidence. Rev Financ Stud 25:1675–1712CrossRefGoogle Scholar
  32. Gaspar JM, Massa M, Matos P (2005) Shareholder investment horizons and the market for corporate control. J Financ Econ 76:135–165CrossRefGoogle Scholar
  33. Graham JR, Harvey CR, Rajgopal S (2005) The economic implications of corporate financial reporting. J Account Econ 40:3–73CrossRefGoogle Scholar
  34. Hamdani A, Yafeh Y (2013) Institutional investors as minority shareholders. Rev Financ 17:691–725CrossRefGoogle Scholar
  35. Himmelberg CP, Hubbard RG, Palia D (1999) Understanding the determinants of managerial ownership and the link between ownership and performance. J Financ Econ 53:353–384CrossRefGoogle Scholar
  36. Holderness CG (2009) The myth of diffuse ownership in the United States. Rev Financ Stud 22:1377–1408CrossRefGoogle Scholar
  37. Hubbard RG (1998) Capital-market imperfections and investment. J Econ Lit 36:193–225Google Scholar
  38. Jiao Y, Ye P (2013) Public pension fund ownership and firm performance. Rev Quant Finan Acc 40:571–590CrossRefGoogle Scholar
  39. Johnson S, Boone P, Breach A, Friedman E (2000) Corporate governance in the Asian financial crisis. J Financ Econ 58:141–186CrossRefGoogle Scholar
  40. Kim B, Jung K, Kim J (2005) Internal funds allocation and the ownership structure: evidence from Korean business groups. Rev Quant Financ Account 25:33–53CrossRefGoogle Scholar
  41. Konijn SJJ, Kraussl R, Lucas A (2011) Blockholder dispersion and firm value. J Corp Financ 17:1330–1339CrossRefGoogle Scholar
  42. La Porta R, Lopez-De-Silanes F, Shleifer A, Vishny RW (1998) Law and finance. J Political Econ 106:1113–1155CrossRefGoogle Scholar
  43. La Porta R, Lopez-De-Silanes F, Shleifer A, Vishny RW (2002) Investor protection and corporate valuation. J Financ 57:1147–1170CrossRefGoogle Scholar
  44. Laeven L, Levine R (2008) Complex ownership structures and corporate valuations. Rev Financ Stud 21:579–604CrossRefGoogle Scholar
  45. Lemmon ML, Lins KV (2003) Ownership structure, corporate governance, and firm value: evidence from the East Asian financial crisis. J Financ 58:1445–1468CrossRefGoogle Scholar
  46. Lesmond DA (2005) Liquidity of emerging markets. J Financ Econ 77:411–452CrossRefGoogle Scholar
  47. Leung and Horwitz (2010) Corporate governance and firm value during a financial crisis. Rev Quant Financ Acount 34:459–481CrossRefGoogle Scholar
  48. Lins KV (2003) Equity ownership and firm value in emerging markets. J Financ Quant Anal 38:159–184CrossRefGoogle Scholar
  49. Lins KV, Volpin P, Wagner HF (2013) Does family control matter? International evidence from the 2008–2009 financial crisis. Rev Financ Stud 26:2583–2619CrossRefGoogle Scholar
  50. Mitton T (2002) A cross-firm analysis of the impact of corporate governance on the East Asian financial crisis. J Financ Econ 64:215–241CrossRefGoogle Scholar
  51. Panousi V, Papanikolaou D (2012) Investment, idiosyncratic risk, and ownership. J Financ 67:1113–1148CrossRefGoogle Scholar
  52. Pantzalis C, Kim C, Kim S (1998) Market valuation and equity ownership structure: the case of agency conflict regimes. Rev Quant Financ Account 11:249–268CrossRefGoogle Scholar
  53. Shleifer A, Vishny RW (1986) Large shareholders and corporate control. J Political Econ 94:461–488CrossRefGoogle Scholar
  54. Spamann H (2010) The “Antidirector Rights Index” revisited. Rev Financ Stud 23:467–486CrossRefGoogle Scholar
  55. Stein JC (1989) Efficient capital markets, inefficient firms: a model of myopic corporate behavior. Q J Econ 104:655–669CrossRefGoogle Scholar
  56. Thomsen S, Pedersen T, Kvist HK (2006) Blockholder ownership: effects on firm value in market and control based governance systems. J Corp Financ 12:246–269CrossRefGoogle Scholar
  57. Ting HI (2013) The influence of insiders and institutional investors on firm performance. Rev Pac Basin Financ Mark Policies 16:1–38CrossRefGoogle Scholar
  58. Villalonga B, Amit R (2006) How do family ownership, control and management affect firm value? J Financ Econ 80:385–417CrossRefGoogle Scholar
  59. Wahal S, McConnell JJ (2000) Do institutional investors exacerbate managerial myopia? J Corp Financ 6:307–329CrossRefGoogle Scholar
  60. Weber M, Weber EU, Nosić A (2013) Who takes risks when and why: determinants of changes in investor risk taking. Rev Financ 17:847–883CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  • Andy Lardon
    • 1
  • Christof Beuselinck
    • 2
  • Marc Deloof
    • 1
    • 3
    Email author
  1. 1.University of AntwerpAntwerpBelgium
  2. 2.IESEG School of Management and LEMLilleFrance
  3. 3.Antwerp Management SchoolAntwerpBelgium

Personalised recommendations