In this paper, we explore an extensive panel data set covering more than 4,000 listed firms in 16 European countries to study the effects of shareholder protection on ownership structure and firm performance. We document a negative firm-level correlation between shareholder protection and ownership concentration. Differentiating between shareholder types, we find that this pattern is mainly driven by strategic investors. In contrast, we find a positive correlation between shareholder protection and block ownership of institutional investors, in particular when we restrict the analysis to independent institutional investors. Finally, we find that independent institutional investors are positively associated with firm valuation as measured by Tobin’s Q. The opposite applies for strategic investors. Overall, our results are consistent with the view that (i) high shareholder protection and (ii) limited ownership by strategic investors make small investors and investors interested in security returns more confident in their investments.
This paper originates from our working paper titled “Regulation and the Anatomy of Ownership Structures in European Listed Firms.” We appreciate valuable comments by Anne Aufhaus, Christoph Kaserer, Thomas Schmid, Michael Wolff, and Shan Zhao as well as the audience of the 2012 China International Conference in Finance in Chongqing, the 2012 Workshop on Issues in Corporate Governance in Jena, and the 2012 Corporate Governance Workshop in Leipzig. Thanks to Darius Abde-Yazdani and Dominik Böhler for excellent research assistance. The usual caveat applies. This work was started while both researchers were with Technische Universität München, TUM School of Management, Center for Entrepreneurial and Financial Studies (CEFS).
Rapp, M.S. and Trinchera, O. (2017), "Regulation and the Ownership Structure of European Listed Firms", Global Corporate Governance (Advances in Financial Economics, Vol. 19), Emerald Publishing Limited, pp. 23-76. https://doi.org/10.1108/S1569-373220160000019003Download as .RIS
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