An Institution-Based View of Ownership
The association between ownership concentration and firm performance is very much influenced by both formal institutions like a country’s legal framework, labor protection and shareholder provisions as well as informal institutions like culture and codes of good corporate governance influence. The same goes for the association between firm performance and executive remuneration, as well as for the level of underpricing of initial public offerings (IPO).
The results of empirical research in the area of ownership concentration and the identity of large shareholders of North-American listed companies indicate that these shareholders do not have any significant positive effect on the value or profitability of these companies. Therefore, there is little empirical evidence for one of the most important and most researched internal corporate governance mechanism. This disconnect between on the one hand the dominant agency theory on the role and influence of ownership concentration and on the other hand the currently available empirical evidence, shows that a thorough re-evaluation of the role of shareholders within corporate governance is necessary.
In his PhD thesis An Institution-Based View of Ownership, which was awarded cum laude, Marc van Essen contributes to this re-evaluation of ownership by examining two broad issues. First, he looks at the influence of formal and informal institutions on the effectiveness of ownership concentration. Not only does he demonstrate the importance of institutions on the efficiency of large shareholders within Asian and European countries, but he also shows that a better developed legal framework reduces the level of IPO underpricing as well as strengthen the association between firm performance and executive remuneration.
Second, he analyses whether the identity of shareholders has an effect on the strategy and profitability of listed companies in diverse contexts. For the two types of shareholders central in this thesis, listed family companies in a North-American context and companies linked to business groups, this indeed seems to be the case.
Marc van Essen defended his dissertation on March 10, 2011 at Rotterdam School of Management, Erasmus University (RSM). His promoters were Prof.dr. Hans van Oosterhout, Professor of Corporate Governance and Responsibility and Prof.dr. Gerard Mertens, Professor of Financial Analysis, both at RSM. Other members of the Doctoral Committee were Prof.dr. Henk Volberda, Prof.dr. Justin Jansen and Dr. Taco Reus.
About Marc van Essen
Marc van Essen (1984, the Netherlands) received his MSc degree in Economics and Law (cum laude) from Utrecht University and he is currently an Assistant Professor of Finance at the Utrecht School of Economics at Utrecht University. His research interests include comparative corporate governance, family business, and meta-analytic research methods. His work has been published or is forthcoming in Academy of Management Journal, Asia Pacific Journal of Management, Journal of Banking and Finance, and Review of Law and Economics. He is a member of the Academy of Management, American Law and Economics Association, and Meta-Analysis of Economics Research (MAER) Network.
Abstract of An Institution-Based View of Ownership
The past two decades have witnessed an exponential growth of research on corporate governance around the world and on the role of the ownership concentration more specifically. In line with a longer tradition of ownership studies in U.S. context, most corporate governance researchers have commonly taken a classical agency theoretical view of ownership concentration. The research presented in this dissertation shows that classical view of ownership seems overly crude. A more fine-grained understanding is provided on the role of ownership in different contexts; one that takes into account the subtly different formal and informal institutional that can be found around the world on the one hand, and that distinguish between the identity of concentrated owners on the other. First, it is shown that a crucial factor with respect to the ownership concentration – firm strategy and performance relationships involve owner identity: i.e. who owns a firm matters significantly for that firm’s objectives, strategies, and performance. Second, this thesis contributes to the emerging institution-based view of corporate governance by expanding its empirical domain and testing empirically the interaction between formal and informal institutions.
