The Relationship Between Ownership Concentration and Performance in Czech Republic
Theory suggests that low ownership concentration is associated with agency costs and highly concentrated ownership structures induce controlling owners to pursue private benefits. Both situations are likely to be associated with negative effects on corporate performance. A number of studies have tested the relationship between ownership concentration and performance empirically, failing to provide any consistent results. While most research has been devoted to study cases of developed countries, the literature on Central and Eastern European countries does not provide better perspectives. The goal of this paper is to explore the relationship between ownership concentration and performance in the case of Czech firms. The research sample contains 34,284 companies and their financial data in the period of 2007-2015. Using linear regression analysis, an inverted U-shaped relationship was found between the Herfindahl index and profitability while controlling for firm size, capital structure, and industry affiliation. No evidence of a linear relationship. Based on one of the largest samples of firms, it is suggested that more concentrated ownership reduces the principal-agent problem and supports performance, but only to a certain extent, where the potential principal-principal problem can still prevail. Moreover, performance is maximized when there is a controlling owner. The findings can be used by policy makers when designing ownership structures. (original abstract)
- Arosa, B., Iturralde, T., & Maseda, A. (2010). Ownership structure and firm performance in non-listed firms: Evidence from Spain. Journal of Family Business Strategy, 1(2), 88-96. doi:10.1016/j.jfbs.2010.03.001
- Balsmeier, B., & Czarnitzki, D. (2017). Ownership concentration, institutional development and firm performance in Central and Eastern Europe. Managerial and Decision Economics, 38(2), 178-192. doi:10.1002/mde.2751
- Berle, A., & Means, G. (1932). The modern corporate and private property. New York, NY: McMillian.
- Burkart, M., Gromb, D., & Panunzi, F. (1997). Large shareholders, monitoring, and the value of the firm. The Quarterly Journal of Economics, 112(3), 693-728. doi:10.1162/003355397555325
- Cabeza-García, L., & Gómez-Ansón, S. (2011). Post-privatisation ownership concentration: Determinants and influence on firm efficiency. Journal of Comparative Economics, 39(3), 412-430. doi: 10.1016/j.jce.2011.02.002
- Caixe, D. F., & Krauter, E. (2013). The influence of the ownership and control structure on corporate market value in Brazil. Revista Contabilidade & Finanças, 24(62), 142-153. doi: 10.1590/S1519-70772013000200005
- Claessens, S., & Djankov, S. (1999). Ownership concentration and corporate performance in the Czech Republic. Journal of Comparative Economics, 27(3), 498-513.
- ČSÚ (2017). Businesses by size of business (number of employees). Czech Statistical Office. Retrieved August 21, 2017 from https://vdb.czso.cz/vdbvo2/faces/en/index.jsf?page=statistiky&katalog=30831
- Damijan, J., Gregoric, A., & Prasnikar, J. (2004). Ownership Concentration and Firm Performance in Slovenia. LICOS Centre for Transition Economics, Discussion Paper 142/2004.
- Demsetz, H., & Villalonga, B. (2001). Ownership structure and corporate performance. Journal of Corporate Finance, 7(3), 209-233. doi: 10.1016/S0929-1199(01)00020-7
- Džanić, A. (2012). Concentration of ownership and corporate performance: evidence from the Zagreb Stock Exchange. Financial Theory and Practice, 36(1), 29-52.
- Earle, J. S., Kucsera, C., & Telegdy, A. (2005). Ownership concentration and corporate performance on the Budapest stock exchange: Do too many cooks spoil the goulash? Corporate Governance: An International Review, 13(2), 254-264. doi: 10.1111/j.1467-8683.2005.00420.x
- Eurostat (2017). Structural business statistics global business activities. Eurostat. Retrieved August 20, 2017 from http://ec.europa.eu/eurostat/web/structural-business-statistics/data/database
- Grosfeld, I., & Hashi, I. (2007). Changes in ownership concentration in mass privatised firms: Evidence from Poland and the Czech Republic. Corporate Governance: An International Review, 15(4), 520-534. doi:10.1111/j.1467-8683.2007.00585.x
- Gugler, K., Mueller, D. C., & Yurtoglu, B. B. (2008). Insider ownership, ownership concentration and investment performance: An international comparison. Journal of Corporate Finance, 14(5), 688-705. doi:10.1016/j.jcorpfin.2008.09.007
- Hayes, A. F., & Cai, L. (2007). Using heteroscedasticity-consistent standard error estimators in OLS regression: An introduction and software implementation. Behavior Research Methods, 39, 709-722. doi:10.3758/BF03192961
- Heugens, P. P., Van Essen, M., & van Oosterhout, J. H. (2009). Meta-analyzing ownership concentration and firm performance in Asia: Towards a more fine-grained understanding. Asia Pacific Journal of Management, 26(3), 481-512. doi: 10.1007/s10490-008-9109-0
- Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. doi:10.1016/0304-405X(76)90026-X
- Kaupelytė, D., & Mscichauskas, D. (2016). Analysis of Factors Influencing Financial Leverage in Lithuanian Listed Companies. Central European Business Review, 5(2), 74-86. doi: 10.18267/j.cebr.153.
- Konečný, L., & Částek, O. (2016). The Effect of Ownership Structure on Corporate Financial Performance in the Czech Republic. Ekonomický časopis, 64(5), 477-498.
- Machek, O., Brabec, M., & Hnilica, J. (2013). Measuring performance gaps between family and non-family businesses: A meta-analysis of existing evidence. International Academic Research Journal of Business and Management, 2(3), 17-30.
- McConnell, J. J., & Servaes, H. (1990). Additional evidence on equity ownership and corporate value. Journal of Financial Economics, 27(2), 595-612. doi: 10.1016/0304-405X(90)90069-C
- Nowak, O. & Kubíček, A. (2012). Corporate governance and company performance: evidence from the Czech Republic. Advances in Economics, Risk Management, Political & Law Science, 235-240.
- Sánchez - Ballesta, J. P., & García - Meca, E. (2007). A meta - analytic vision of the effect of ownership structure on firm performance. Corporate Governance: An International Review, 15(5), 879-892. doi:10.1111/j.1467-8683.2007.00604.x
- Short, H., & Keasey, K. (1999). Managerial Ownership and the Performance of Firms: Evidence from the UK. Journal of Corporate Finance, 5(1), 79-101. doi: 10.1016/S0929-1199(98)00016-9
- Thomsen, S., & Pedersen, T. (2000). Ownership structure and economic performance in the largest European companies. Strategic Management Journal, 21(6), 689-705. doi:10.1002/(SICI)1097-0266(200006)21:6<689::AID-SMJ115>3.0.CO;2-Y
- Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., & Jiang, Y. (2008). Corporate governance in emerging economies: A review of the principal-principal perspective. Journal of Management Studies, 45(1), 196-220. doi:10.1111/j.1467-6486.2007.00752.x
- Wang, K., & Shailer, G. (2015). Ownership concentration and firm performance in emerging markets: A meta - analysis. Journal of Economic Surveys, 29(2), 199-229. doi: 10.1111/joes.12048