Impact of ownership concentration on stock returns: a case of developed economies

Abstract

Purpose

The primary objective of this study is to determine how concentrated ownership affects stock returns by country and scale (by market capitalization), like large, medium, and small-cap firms in selected developed economies of the world.

Design/methodology/approach

Using a dataset comprising 12,751 annual observations from 850 listed companies from developed economies from 2004 to 2018, the study employs panel data models and instrumental variable estimation to mitigate endogeneity bias.

Findings

The findings reveal a significant and positive correlation between ownership concentration and expected returns on corporate equities in developed economies. Furthermore, the study categorizes firms into distinct size categories and finds nuanced differences in the relationship between ownership concentration and stock returns across large, medium, and small-cap enterprises. The results of the study reveal that ownership concentration (by country) and scale (Large, medium, and small) have a significant and positive impact on the stock returns of firms in developed economies.

Practical implications

the practical implications of this study extend to investors, firms, policymakers, regulators, and other stakeholders involved in the financial markets. By considering these implications, stakeholders can make informed decisions to enhance market efficiency, investor protection, and overall market integrity.

Originality/value

To the authors' understanding, this study is the first to examine the impact of concentrated ownership on excessive stock returns across countries and scales, with an explicit focus on large, medium, and small companies in select developed economies worldwide.

Citation

Ali, A. and Masood, O. (2024), "Impact of ownership concentration on stock returns: a case of developed economies", American Journal of Business, Vol. 39 No. 3, pp. 158-177. https://doi.org/10.1108/AJB-05-2023-0075