EQUITY OWNERSHIP STRUCTURE AND CORPORATE PERFORMANCE USING INDUSTRY-ADJUSTED MEASURES

Download This Article

Abstract

This paper applies a more robust methodology in industry-adjustment on measuring firm performance as related to ownership structure. We consider insider ownership, institutional ownership, and blockholder ownership. Even after controlling for the endogeneity of insider ownership, we still find positive effect of insider ownership on firm performance, which is conflicting with results found by other recent studies. We find a non-linearity in the relationship between insider ownership and firm performance, but our results do not support a relationship as neat as the inverse U-shape effect found by earlier studies. Our results indicate that the effects of the insider and square of insider on performance are positive, yet the effect of the cubic of insider ownership on firm performance is negative. As no other study based on U.S. data used the cubic of insider ownership and document its effect, our finding is new. We find strong negative effect of blockholder ownership on firm performance, and our results indicate that institutional investors are efficient monitors whose existence helps improving firm value and protecting outside minority shareholders.

Keywords: Ownership, Tobin’s Q, Insider, Institutions, Blockholder

How to cite this paper: Yi, B., Lin, J. B., Mooney, J. (2010). Equity ownership structure and corporate performance using industry-adjusted measures [Special issue]. Corporate Ownership & Control, 7(4-5), 49-61. https://doi.org/10.22495/cocv7i4sip7