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Theoretical Background and Hypotheses

Part of the Contributions to Economics book series (CE)

Keywords

Ownership Structure Minority Shareholder Institutional Ownership Large Shareholder Ownership Concentration 
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References

  1. 1.
    For an overview of selected studies and their findings see Table A.9 in Appendix A.5, p. 231.Google Scholar
  2. 2.
    Exceptions are the combined effect by Mørck et al. [1988] and the integrated argument by Stulz [1988]. These are combinations of before explained effects and are mentioned due to their importance and frequent use in literature.Google Scholar
  3. 3.
    See Chen et al. [1993], Cho [1998], Cleary [2000], Cui/Mak [2002], Gugler et al. [2003b], Hermalin/Weisbach [1991], Holderness et al. [1999], Hubbard/Palia [1995], Kole [1996], McConnell/Servaes [1990, 1995], Monsen et al. [1968], Mørck et al. [1988], Short/Keasey [1999], Short et al. [2002a, 1994], Stulz [1988], Welch [2003], and Wruck [1989].Google Scholar
  4. 4.
    Such functions were already found by Mørck et al. [1988] and Stulz [1988]. See Figure 3.3 and Figure 3.4, p. 51 and p. 53.Google Scholar
  5. 6.
    See Section 4.4.2, p. 89.Google Scholar
  6. 7.
    See Barnea et al. [1981, p. 8] and Richter/Furubotn [1999, p. 137].Google Scholar
  7. 8.
    Jensen/ Meckling [1976, p. 310]. See Richter/Furubotn [1999, p. 5].Google Scholar
  8. 9.
    See Barnea et al. [1981, pp. 25–26] and Richter/Furubotn [1999, p. 3].Google Scholar
  9. 10.
    See Jensen/Smith [1985, p. 96] and Richter/Furubotn [1999, p. 163].Google Scholar
  10. 11.
    See Jensen/Meckling [1976, p. 308] and Richter/Furubotn [1999, p. 25].Google Scholar
  11. 12.
    See Jensen/Meckling [1976, p. 305] and Richter/Furubotn [1999, p. 163].Google Scholar
  12. 13.
    See Richter/Furubotn [1999, p. 163].Google Scholar
  13. 14.
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    See Jensen/Meckling [1976, p. 309] and Jensen/Smith [1985, p. 97].Google Scholar
  19. 20.
    See Bushee [1998, p. 309] and Jensen/Smith [1985, p. 97].Google Scholar
  20. 21.
    In the shareholder-management conflict these might include the application of certain accounting standards [Jensen/Smith 1985, p. 126], the creation of a positive reputation [Spremann 1988, p. 619] or the fulfillment of the German Corporate Governance Code [Bassen et al. 2000].Google Scholar
  21. 22.
    See Coase [1937, pp. 390–391], Jensen/Meckling [1976, p. 308], and Jensen/Smith [1985, p. 97].Google Scholar
  22. 23.
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  23. 24.
    See Barnea et al. [1981, p. 15], Jensen/Meckling [1976, p. 308], and Swoboda [1982, p. 710].Google Scholar
  24. 25.
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  26. 27.
    See Achleitner/Wichels [2000, p. 7], Barnea et al. [1981, p. 31], Byrd et al. [1998, p. 15–18], and La Porta et al. [2000, p. 4].Google Scholar
  27. 28.
    See Section 2.2.2, p. 13. For an overview over studies on ownership concentration and its effect on corporate control see Holderness [2003] and Short [1994].Google Scholar
  28. 29.
    See Shleifer/Vishny [1986, p. 463].Google Scholar
  29. 30.
    See Bøhren/ Ødegaard [2003, pp. 4–5], Bushee [1998, p. 309], Holderness [2003, p. 56], Shleifer/Vishny [1997, p. 754], and Shleifer/Vishny [1986]. This hypothesis is theoretically proven by the models of Grossman [1976], Grossman/Hart [1980], Shleifer/Vishny [1986] and others as Bolton/von Thadden [1998], Burkart et al. [1997], Huddart [1993], Leech [2001], and Maug [1998]. Empirical evidence supporting this hypothesis is found by several studies as Agrawal/Knoeber [1996], Agrawal/Mandelker [1990], Bebchuk/Fried [2003], Bertrand/Mullainathan [2000], Brailsford et al. [2002], Carney/Gedajlovic [2002], Denis/Serrano [1996], Edwards/Weichenrieder [1999, 2004], Franks et al. [1997], Gedajlovic/Shapiro [2002], Hill/Snell [1989], Hindley [1970], Kaplan [1989], Monsen et al. [1968], Mørck et al. [1988], Pedersen/Thomsen [1998, 1999], Renneboog [2000], Short et al. [2002a], Wruck [1989], Yafeh/Yosha [1995], and Zeckhauser/Pound [1990].Google Scholar
  30. 31.
    Such a relation was found by several studies as Hindley [1970], Lehmann/Weigand [2000], and Pedersen/Thomsen [1999].Google Scholar
  31. 32.
    See Burkart et al. [1997, p. 674] and Pagano/Röell [1998, pp. 187–190].Google Scholar
  32. 33.
    See Aggarwal/Samwick [2003], Barclay/Holderness [1989], Dyck/Zingales [2004], Zingales [1994], and Zwiebel [1995].Google Scholar
  33. 34.
    See Barclay/Holderness [1989, p. 372] and Holderness [2003, pp. 55–56].Google Scholar
  34. 35.
    See Bebchuk [1999], Bebchuk et al. [2000], Burkart et al. [1997], Goshen [2003], Zingales [1994], and Zwiebel [1995].Google Scholar
  35. 36.
    See also Anderson/Reeb [2003, p. 1304], Becht [1999], and Lemmon/Lins [2003, pp. 1445–1446 and p. 1466].Google Scholar
  36. 37.
    See Barclay/Holderness [1989] and La Porta et al. [2002, p. 1148]. This problem is similar to the general entrenchment argument of insider ownership. See Chapter 3.4.1, p. 48.Google Scholar
  37. 38.
    See Bolton/von Thadden [1998, p. 3] and furthermore Barclay/Holderness [1989] and Becht [1999].Google Scholar
  38. 39.
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  39. 40.
    See Bolton/von Thadden [1998, pp. 2–3], Fama/Jensen [1983a, p. 329], and Thomsen [2005, p. 4].Google Scholar
  40. 41.
    See Alchian [1950], Becker [1962], Friedman [1953, p. 22], and Williamson [1985, p. 22].Google Scholar
  41. 42.
    See Mathiesen [2002, pp. 23–24].Google Scholar
  42. 43.
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  43. 44.
    See Jensen et al. [1992, p. 250].Google Scholar
  44. 45.
    The pecking order theory was first proposed by Donaldson [1961] to explain observed financial behavior of firms. Myers/Majluf [1984] and Myers [1984] introduced a modified version with informational asymmetries and bankruptcy costs to also influence capital structure policy. It states that, as far as firms can choose, they prefer internal over equity financing and equity over debt financing.Google Scholar
  45. 46.
    See Jensen [1986, pp. 323–329].Google Scholar
  46. 47.
    For a more detailed explanation see Chapter 3.3.1, p. 44.Google Scholar
  47. 48.
    The cost-of-capital argument is mediated by risk and the profit-debt-ownership argument by leverage. For a list of the included control variables see Table 4.5, p. 94.Google Scholar
  48. 49.
    For a literature review on insider ownership and performance see Short [1994] and Holderness [2003].Google Scholar
  49. 50.
    See Benston [1985], Brandhoff [1999, p. 223], Byrd et al. [1998, pp. 18–19], Cebenoyan et al. [2000, p. 23], Cui/Mak [2002, p. 315], and Jensen/Meckling [1976, p. 312–313]. Next to simple stock ownership similar amelioration of the agency conflict can be achieved through different compensation designs. See Byrd et al. [1998, pp. 19–21], Huddart [1993], and Jensen/Murphy [1990].Google Scholar
  50. 51.
    See Achleitner/Wichels [2000, pp. 7 and 10], Bøhren/Ødegaard [2003, p. 5], and Cebenoyan et al. [2000, p. 23]. For an overview over selected studies assuming the incentive alignment argument and their results see Table A.7 in Appendix A.5, p. 229.Google Scholar
  51. 52.
    For an overview over selected studies assuming the general entrenchment argument and their results see Table A.8 in Appendix A.5, p. 230.Google Scholar
  52. 53.
    The shareholder recognizes the opportunistic behavior of the management, but cannot prevent it. See Grossman/Hart [1986], and Williamson [1975].Google Scholar
  53. 54.
    The notation “entrenchment hypothesis” was first introduced by Mørck et al. [1988, p. 294].Google Scholar
  54. 55.
    See Mørck et al. [1988, pp. 293–294], Shleifer/Vishny [1989, pp. 123–124], and Stulz [1988, pp. 27–28].Google Scholar
  55. 56.
    See Mørck et al. [1988, p. 294].Google Scholar
  56. 57.
    See Demsetz/Ricardo-Campbell [1983] and Fama/Jensen [1983b].Google Scholar
  57. 58.
    See Jensen/Ruback [1983], Mørck et al. [1988, p. 294], Stulz [1988, p. 50], and Walkling/Long [1984].Google Scholar
  58. 59.
    The N-shape was often applied as for instance by Brailsford et al. [2002], Chen et al. [1993], Chen/Ho [2000], Cho [1998], Cleary [2000], Cui/Mak [2002], Gugler et al. [2003b], Hermalin/Weisbach [1991], Hubbard/Palia [1995], Kole [1996], Mudambi/Nicosia [1998], Short/Keasey [1999], Short et al. [2002a, 1994], and Welch [2003]. However, the thresholds of 5% and 25% were often altered.Google Scholar
  59. 60.
    See McConnell/Servaes [1990], McConnell/Servaes [1995], and Stulz et al. [1990].Google Scholar
  60. 61.
    Stulz’s argument was also applied by Holderness et al. [1999], McConnell/-Muscarella [1985], McConnell/Servaes [1990, 1995], Slovin/Sushka [1993], Song/-Walkling [1993], Stulz [1990], and Stulz et al. [1990].Google Scholar
  61. 63.
    This hypothesis is assumed by Bahng [2002], Eckbo/Smith [1998], and Himmelberg et al. [1999].Google Scholar
  62. 64.
    See Jensen [1986, p. 324].Google Scholar
  63. 65.
    See Mathiesen [2002, pp. 22–23]. The capital structure neutralizing effect was also mentioned by McEachern [1975, p. 48].Google Scholar
  64. 66.
    See Kole [1996, p. 16].Google Scholar
  65. 67.
    See Byrd et al. [1998, pp. 18–21], Huddart [1993], and Jensen/Murphy [1990]. For studies on the effect of the salary level and management turnover see Baker et al. [1988], Dahya et al. [1998], Denis/Serrano [1996], and Warner et al. [1988]. For performance based boni see Baker et al. [1988], Bushman et al. [1996], Gilson [1989], Kaplan [1994], Lambert/Larcker [1987], Murphy/Zimmerman [1993], and Sloan [1993]; for accounting based boni see Banker et al. [1996] and Kole/Lehn [1997] and for market-based boni see Yermack [1995] and Mehran [1995].Google Scholar
  66. 68.
    See Lorie/Niederhoffer [1968], Masson [1971, p. 1291], and McEachern [1975, pp. 92–93].Google Scholar
  67. 70.
    See Cho [1998, p. 115] and Yermack [1997].Google Scholar
  68. 71.
    Lorie/ Niederhoffer [1968] started a whole series of papers examining if insider can outperform other investors by using their inside knowledge. See Ahuja et al. [2005], Beneish/Vargus [2002], Burton et al. [2003], Bushman et al. [2005], Chalmers et al. [2002], Gombola et al. [1999], Hanson/Song [1995], Hu/H. [2001], Lee [2002], Pescatrice et al. [1992], and Zhang [2005].Google Scholar
  69. 72.
    See Mußler [2005], Loderer/Martin [1997, p. 237], and Mathiesen [2002, p. 20]. Studies analyzing the insider-investment argument are Demsetz [1986], Eckbo/-Smith [1998], Hermalin/Weisbach [1991], Jaffe [1974], Loderer/Martin [1997], Rozeff/Zaman [1988], and Seyhun [1986].Google Scholar
  70. 75.
    See Taylor [1990, p. 70].Google Scholar
  71. 76.
    Hand [1990] uses institutional ownership even as proxy for sophisticated investors.Google Scholar
  72. 77.
    See Becht et al. [2002, pp. 38–41], Byrd et al. [1998, pp. 23–25], Jensen/Warner [1988, pp. 27–28], Maug [1998], and Moyer et al. [1992, p. 32]. The monitoring effect is proven positive by several studies like Agrawal/Knoeber [1996], Agrawal/-Mandelker [1990], Bethel et al. [1997], Brickley et al. [1988], Chaganti/Damanpour [1991], Chowdhury/Geringer [2001], Dahya et al. [1998], Elston [2004], Elston et al. [2002], Gugler et al. [2003b], Holderness/Sheehan [1985], Huson [1997], Jones/Morse [1997], McConnell/Servaes [1990], Mikkelson/Ruback [1985], Nesbitt [1994], Nickell et al. [1997], Nyman/Silberstan [1978], Opler/Sokobin [1997], Pound [1988a], Ryan/Schneider [2002], Shome/Singh [1995], Short/Keasey [1999], Smith [1996], and Strickland et al. [1996].Google Scholar
  73. 79.
    See also Jensen/Warner [1988, pp. 25–27], Bushee [1998, p. 308], and Dechow/-Sloan [1991].Google Scholar
  74. 81.
    See Bebchuk/Fried [2003].Google Scholar
  75. 82.
    See Froot et al. [1992a, pp. 50–55].Google Scholar
  76. 83.
    See Graves/Waddock [1990, pp. 76–77], Jacobs [1991, pp. 37–38], and Porter [1992, pp. 43–46].Google Scholar
  77. 84.
    See also Monks/Minow [1995, Chapter 2].Google Scholar
  78. 85.
    Furthermore, Eames [1997] reports no changes in the earnings response coefficients for changes in institutional ownership.Google Scholar
  79. 86.
    See Badrinath et al. [1989].Google Scholar
  80. 87.
    See Froot et al. [1992a, pp. 55–56] and Porter [1992, p. 43].Google Scholar
  81. 88.
    This view is also supported by Froot et al. [1992b] and Porter [1992, p. 43].Google Scholar
  82. 89.
    See Coffee Jr. [1991], Froot et al. [1992a, p. 56], and Porter [1992, p. 43].Google Scholar
  83. 90.
    See Anand [1991], Elgin [1992], Gugler et al. [2003b], and Lang/McNichols [1997].Google Scholar
  84. 91.
    See Bushee [1998, pp. 310–311] and Porter [1992, p. 46–49].Google Scholar
  85. 92.
    See Pound [1988a].Google Scholar
  86. 93.
    The results of Duggal/Millar [1999] and Edwards/Nibler [2000] support their evidence further.Google Scholar
  87. 94.
    Agrawal/ Mandelker [1990, pp. 143–144] call it also “passive voting hypothesis”.Google Scholar
  88. 96.
    See Loderer/Martin [1997, p. 237] and Demsetz/Lehn [1985].Google Scholar
  89. 98.
    See Agrawal/Knoeber [1996], Bathala/Moon [1994], Chen/Steiner [1999], Crutchley/Hansen [1989], Hermalin/Weisbach [1991], Holthausen/Larcker [1993], Jensen et al. [1992], and Moyer et al. [1992].Google Scholar
  90. 99.
    See Agrawal/Knoeber [1996, p. 381].Google Scholar
  91. 100.
    See Hill/Snell [1989, pp. 28–29] and Holderness [2003, p. 56].Google Scholar
  92. 101.
    The substitution effect of agency devices was introduced by Jensen/Meckling [1976] and Jensen [1986] and especially pronounced on the relation of managerial ownership and debt.Google Scholar
  93. 102.
    See Jensen/Ruback [1983] and Walkling/Long [1984]. For a more detailed explanation see Section 3.4.1, p. 50.Google Scholar
  94. 103.
    See Chen/Steiner [1999, p. 123].Google Scholar
  95. 105.
    See Bathala/Moon [1994, pp. 40–41], Chen/Steiner [1999, pp. 122–123], Jensen/-Meckling [1976], and Jensen [1986]. The argument found empirical support by Bathala/Moon [1994]Google Scholar

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