Large shareholders, control contestability and firm productive efficiency

This paper investigates the effect of the largest controlling shareholders on firm productive efficiency. Using a sample of French listed firms, we employ parametric (linear regression), semi-parametric (Olley and Pakes) and non-parametric (Data Envelopment Analysis) approaches to estimate productive efficiency. We find a negative association between the excess control rights of dominant owners and firm productive efficiency, indicating that their private benefits of control prevent them from favoring productive projects. Our findings withstood several sensitivity and endogeneity tests. Additional analysis shows that multiple large shareholders, beyond the controlling owner, play a governance role that neutralizes the effect of excess control on productive efficiency.

[1]  Vicente Vargas,et al.  RESEARCH NOTES AND COMMENTARIES OWNERSHIP, ORGANIZATION, AND PRIVATE FIRMS’ EFFICIENT USE OF RESOURCES , 2003 .

[2]  I. Hasan,et al.  Corporate Social Responsibility and Firm Financial Performance: The Mediating Role of Productivity , 2016, Journal of Business Ethics.

[3]  F. López-Iturriaga,et al.  Do Shareholder Coalitions Modify Dominant Owner's Control? The Impact on Dividend Policy , 2014 .

[4]  Omrane Guedhami,et al.  Excess Control, Corporate Governance and Implied Cost of Equity: International Evidence , 2009 .

[5]  B. Zhu,et al.  Multiple large shareholders and corporate investment: Evidence from China , 2018, Journal of Corporate Finance.

[6]  Lubomir P. Litov,et al.  Corporate Governance and Risk Taking , 2007 .

[7]  Wei Huang,et al.  Multiple Large Shareholders, Excess Leverage and Tunneling: Evidence from an Emerging Market , 2017 .

[8]  A. Shleifer,et al.  A Survey of Corporate Governance , 1996 .

[9]  A. Pakes,et al.  The Dynamics of Productivity in the Telecommunications Equipment Industry , 1992 .

[10]  Antonio Dávila,et al.  Shareholder Protection: The Role of Multiple Large Shareholders , 2016, SSRN Electronic Journal.

[11]  Najah Attig,et al.  Do Multiple Large Shareholders Play a Corporate Governance Role? Evidence from East Asia , 2009 .

[12]  Mary A. Weiss,et al.  Economies of Scope in Financial Services: A DEA Efficiency Analysis of the US Insurance Industry , 2010 .

[13]  Marco Pagano,et al.  The Choice of Stock Ownership Structure: Agency Costs, Monitoring, and the Decision to Go Public , 1998 .

[14]  K. Moores,et al.  Firm ownership and productivity: a study of family and non-family SMEs , 2013 .

[15]  Ilke Van Beveren.  Total Factor Productivity Estimation: A Practical Review , 2012 .

[16]  Julio Pindado,et al.  Family control and investment–cash flow sensitivity: Empirical evidence from the Euro zone , 2011 .

[17]  Laura Casares Field,et al.  The Effect of Director Experience on Acquisition Performance , 2016 .

[18]  Hernán Herrera-Echeverri,et al.  How corporate governance affects productivity in civil-law business environments: Evidence from Latin America , 2018, Global Finance Journal.

[19]  Geoff Harris,et al.  Relative efficiency among South African universities: A data envelopment analysis , 2004 .

[20]  A. Shleifer,et al.  Investor Protection and Corporate Valuation , 1999 .

[21]  M. Marchica,et al.  Large Shareholder Diversification and Corporate Risk-Taking , 2010 .

[22]  Thomas P. Ryan,et al.  Modern Regression Methods , 1996 .

[23]  S. Nickell.  Competition and Corporate Performance , 1996, Journal of Political Economy.

[24]  L. Renneboog,et al.  Do Corporate Control and Product Market Competition Lead to Stronger Productivity Growth? Evidence from Market-Oriented and Blockholderbased Governance Regimes , 2003 .

[25]  Zvi Griliches,et al.  Production Functions: The Search for Identification , 1995 .

[26]  Sabri Boubaker,et al.  The Role of Multiple Large Shareholders in the Choice of Debt Source , 2016 .

[27]  Luigi Zingales,et al.  Private Benefits of Control: An International Comparison , 2004 .

[28]  Paul A. Gompers,et al.  Extreme Governance: An Analysis of Dual-Class Firms in the United States , 2010 .

[29]  Ilke Van Beveren,et al.  TOTAL FACTOR PRODUCTIVITY ESTIMATION: A PRACTICAL REVIEW , 2012 .

[30]  Jeffrey Zwiebel,et al.  Block Investment and Partial Benefits of Corporate Control , 1995 .

[31]  Ross Levine,et al.  Complex Ownership Structures and Corporate Valuations , 2006, SSRN Electronic Journal.

[32]  Sabri Boubaker,et al.  The Sources of Shareholder Wealth Gains from Going Private Transactions: The Role of Controlling Shareholders , 2014 .

[33]  Marcos Pereira Estellita Lins,et al.  Review of Methods for Increasing Discrimination in Data Envelopment Analysis , 2002, Ann. Oper. Res..

[34]  Lawrence M. Seiford,et al.  Recent developments in dea : the mathematical programming approach to frontier analysis , 1990 .

[35]  C. Hill,et al.  Effects of Ownership Structure and Control on Corporate Productivity , 1989 .

[36]  G. Tian,et al.  Corporate Governance, External Market Discipline and Firm Productivity , 2009 .

[37]  Teodora Paligorova.  Corporate Risk Taking and Ownership Structure , 2010 .

[38]  Larry H. P. Lang,et al.  Dividends and Expropriation , 2000 .

[39]  S. R. Searle,et al.  Applied Linear Regression Models, 2nd edition , 2016 .

[40]  Olena Havrylchyk.  Efficiency of the Polish Banking Industry: Foreign Versus Domestic Banks , 2006 .

[41]  Preyas S. Desai,et al.  Efficiency of mutual funds and portfolio performance measurement: A non-parametric approach , 1997 .

[42]  Milind Sathye,et al.  X-efficiency in Australian banking: An empirical investigation , 2001 .

[43]  Benjamin Maury,et al.  Multiple Large Shareholders and Firm Value , 2004 .

[44]  A. Shleifer,et al.  Large Shareholders and Corporate Control , 1986, Journal of Political Economy.

[45]  Mohammad Bitar,et al.  Corporate Social Responsibility and Investment Efficiency , 2015, Journal of Business Ethics.

[46]  Ariel Pakes,et al.  The Dynamics of Productivity in the Telecommunications Equipment Industry , 1996 .

[47]  M. Hu,et al.  Do executives benefit from shareholder disputes? Evidence from multiple large shareholders in Chinese listed firms , 2018, Journal of Corporate Finance.

[48]  Guochang Zhang,et al.  Ownership Concentration, Risk Aversion and the Effect of Financial Structure on Investment Decisions , 1998 .

[49]  Does Financing Spur Small Business Productivity? Evidence from a Natural Experiment , 2014 .

[50]  Reinier Kraakman,et al.  Stock Pyramids, Cross-Ownership, and Dual Class Equity: The Creation and Agency Costs of Separating Control from Cash Flow Rights , 1999 .

[51]  G. Tian,et al.  Family control and corporate cash holdings: Evidence from China , 2015 .

[52]  Florencio López‐de‐Silanes,et al.  Corporate Ownership Around the World , 1998 .

[53]  Laurent Frésard,et al.  The Value of Excess Cash and Corporate Governance: Evidence from U.S. Cross-listings , 2009 .

[54]  M. Darrough,et al.  The Impact of Corporate Welfare Policy on Firm-Level Productivity: Evidence from Unemployment Insurance , 2019 .

[55]  Antonella Basso,et al.  A Data Envelopment Analysis Approach to Measure the Mutual Fund Performance , 2001, Eur. J. Oper. Res..

[56]  Erling Barth,et al.  Family ownership and productivity: the role of owner-management , 2005 .

[57]  Abraham Charnes,et al.  Measuring the efficiency of decision making units , 1978 .

[58]  M. Farrell.  The Measurement of Productive Efficiency , 1957 .

[59]  H. Sherman,et al.  Bank branch operating efficiency: Evaluation with Data Envelopment Analysis , 1985 .

[60]  Johannes Van Biesebroeck,et al.  Robustness of Productivity Estimates , 2007 .

[61]  Sabri Boubaker.  Ownership-Control Discrepancy and Firm Value: Evidence from France , 2005 .

[62]  Richard C. Morey,et al.  Mutual fund performance appraisals: a multi-horizon perspective with endogenous benchmarking , 1999 .

[63]  Javier Vidal-García,et al.  The efficiency of mutual funds , 2018, Ann. Oper. Res..

[64]  Chen Lin,et al.  Ownership Structure and the Cost of Corporate Borrowing , 2010 .

[65]  J. Stock,et al.  Instrumental Variables Regression with Weak Instruments , 1994 .

[66]  Sabri Boubaker,et al.  Ownership Structure, Control Contestability, and Corporate Debt Maturity , 2015 .

[67]  A. Charnes,et al.  Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis , 1984 .

[68]  Ioannis E. Tsolas,et al.  Evaluation of credit risk based on firm performance , 2010, Eur. J. Oper. Res..

[69]  M. C. Jensen,et al.  Harvard Business School; SSRN; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit , 1976 .

[70]  Sabri Boubaker,et al.  Multiple Large Shareholders and Corporate Risk-Taking: Evidence from French Family Firms , 2015 .

[71]  Najah Attig,et al.  Multiple Large Shareholders, Control Contests, and Implied Cost of Equity , 2008 .

[72]  S. Yeaple,et al.  Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States , 2003 .

[73]  Minna Martikainen,et al.  Production Functions and Productivity of Family Firms: Evidence from the S&P 500 , 2009 .

[74]  Dev R. Mishra.  Multiple Large Shareholders and Corporate Risk Taking: Evidence from East Asia , 2011 .

[75]  Larry H. P. Lang,et al.  The Ultimate Ownership of Western European Corporations , 2002 .

[76]  Mara Faccio,et al.  Differences between Politically Connected and Nonconnected Firms: A Cross‐Country Analysis , 2010 .

[77]  Henrik Cronqvist,et al.  Agency Costs of Controlling Minority Shareholders , 2003, Journal of Financial and Quantitative Analysis.

[78]  Walter Ukovich,et al.  A classification of DEA models when the internal structure of the Decision Making Units is considered , 2010, Ann. Oper. Res..

[79]  Larry H. P. Lang,et al.  The Separation of Ownership and Control in East Asian Corporations , 1999 .

[80]  Brian P. Poi,et al.  Production Function Estimation in Stata Using the Olley and Pakes Method , 2008 .

[81]  Jeff Frooman,et al.  The Consumer Scam: An Agency-Theoretic Approach , 2019 .

[82]  Charlie X. Cai,et al.  The Cost of Multiple Large Shareholders , 2016 .

[83]  O. Guedhami,et al.  Country-level institutions, firm value, and the role of corporate social responsibility initiatives , 2015 .

[84]  M. Hall,et al.  The Impact of Macroeconomic and Regulatory Factors on Bank Efficiency: A Non-Parametric Analysis of Hong Kong's Banking System , 2005 .

[85]  Stijn Claessens,et al.  Disentangling the Incentive and Entrenchment Effects of Large Shareholdings , 2002 .

[86]  D. Margaritis,et al.  Capital structure, equity ownership and firm performance , 2010 .

[87]  Raphael Amit,et al.  How Do Family Ownership, Control, and Management Affect Firm Value? , 2006 .

[88]  J. S. Caralt,et al.  Ownership structure and innovation: is there a real link? , 2005 .

[89]  Morten Bennedsen,et al.  The balance of power in closely held corporations , 2000 .

[90]  Gustavo Manso,et al.  Governance Through Trading and Intervention: A Theory of Multiple Blockholders , 2011 .

[91]  John R. Nofsinger,et al.  Corporate Culture and Investment–Cash Flow Sensitivity , 2017, Journal of Business Ethics.

[92]  L. Renneboog,et al.  Do Corporate Control and Product Market Competition Lead to Stronger Productivity Growth? Evidence from Market‐Oriented and Blockholder‐Based Governance Regimes* , 2005, The Journal of Law and Economics.

[93]  J. Stock,et al.  Instrumental Variables Regression with Weak Instruments , 1994 .

[94]  F. Lichtenberg,et al.  Managerial ownership and firm performance: A re-examination using productivity measurement , 1999 .