Patterns of Corporate Ownership: Insights from a unique data set

Using a data base which is exceptionally rich and accurate by international standards, this paper quantifies a wide range of ownership structure characteristics for all Oslo Stock Exchange firms in the period 1989–1997. Overall, we find that their ownership structures differ remarkably from those of other European firms. We speculate that a socialdemocratic rule and strong legal protection of stockholder rights may explain why the personal investment in Norwegian listed firms is so limited (low direct ownership), why the largest owner is so small (low concentration), and why the other major owners are so large (flat power structure). Our findings raise two questions about the viability of corporate governance systems in general. The first is whether delegated monitoring carried out by state bureaucrats and corporate managers is an effective disciplining mechanism. The second question is whether low ownership concentration produces strong managers and weak owners or whether the flat power structure facilitates joint monitoring by owners who are individually weak, but collectively strong.

Do stakeholders matter for corporate governance? Behavior and performance of Norwegian banks 1985-2002

First published on CCGRs homepage: http://www.bi.no/ccgrThe distribution of formal control rights among the firm’s stakeholders (such as stockholders, creditors, employees, politicians, and customers) attracts considerable public attention in many countries. For instance, a common view in the UK and the US is that firms should have profit maximization as their only objective, and that stockholders should be the dominant stakeholder in corporate governance. In contrast, conventional wisdom in Continental Europe and Japan is that firms should have multiple objectives and allocate formal power to more stakeholder types than just stockholders. The politics of corporate governance addresses this issue by regulating the owners’ ability to control the corporation. This report addresses this issue empirically by trying to answer two questions. First, what relationship do we actually observe between stakeholder structure and corporate behavior? For instance, do firms take less risk when stockholders share control rights with employees, customers, and politicians? Second, what is the real-world link between stakeholder structure and economic performance? For instance, do ownerless firms have lower returns to capital invested than firms owned by stockholders

Dividends and taxes: The moderating role of agency conflicts

We find that potential conflicts between majority and minority shareholders strongly influence how dividends respond to taxes. When the controlling shareholder has a smaller stake, the incentives to extract private benefits are stronger – a shareholder conflict that can be mitigated by dividend payout. We study a large and clean regulatory shock in Norway that increases the dividend tax rate for all individuals from 0% to 28%. We find that dividends drop less the higher the potential shareholder conflict, suggesting that dividend policy trades off tax and agency considerations. The average payout ratio falls by 30 percentage points when the conflict potential is low, but by only 18 points when it is high. These lower dividends cannot be explained by higher salaries to shareholders or diverse liquidity needs. We also observe a strong increase in indirect ownership of high-conflict firms through tax-exempt holding companies and suggest policy implications for intercorporate dividend taxation.publishedVersio

Corporate finance and governance in firms with limited liability: Basic characteristics

The report has previously been published on CCGRs homepage: http://www.bi.no/ccgrWe analyze a wide range of corporate finance and governance characteristics in all active Norwegian firms with limited liability over the period 1994-2005. This sample includes about 77,000 nonlisted (private) firms and 135 listed (public) firms per year. Nonlisted firms have barely been addressed in the finance literature, despite our finding that they employ four times more people than listed firms, have about four times higher revenues, hold twice as much assets, and constitute over 99% of the enterprises. Indirect evidence suggests that this is also the typical situation worldwide. The unexplored nature of nonlisted firms makes us address a large set of characteristics, and to focus more on describing overall patterns in the data rather than making elaborate tests of behavioral hypotheses. We find that the size distribution of firms in the economy is close to lognormal, which is consistent with independence between size and growth for the individual firm

The duration of equity ownership at the Oslo Stock Exchange 1989-1999

To date little is known about how long equity ownership lasts, what determines its length, and whether ownership duration is related to rm performance. Using a unique time series of equity holdings over eleven years, we nd that on average the rm's largest owner stays less than three years and stays longer than owners with smaller stakes. The duration of nancial institutions and foreigners is shorter than that of individuals and industrial rms. We show that ownership duration is duration dependent as the probability of closing an equity position is a function of how long the owner has held the stake. Ownership duration appears to match the duration of the rm's investment projects. We nd no evidence that large owners vote by foot in the sense that bad news about earnings leads to duration ending. There is a negative relationship between ownership duration and a rm's performance in general, but the sign and strength of this relationship di ers across owner types. Long duration by nancial institutions and industrial corporations is negatively related to performance, whereas the opposite is true for individuals. This suggests that long term ownership may improve rm performance if the monitoring is direct as opposed to delegated

Stockholder Conflicts and Dividend Payout

This paper examines how dividend policy influences conflicts of interest between majority and minority stockholders in a large sample of private firms with controlling blockholders. We find that a higher potential for stockholder conflicts is associated with higher payout. This tendency is stronger when the minority stockholder structure is diffuse and when the minority is not on the firm’s board. Minority-friendly payout is also associated with higher subsequent minority investment in the firm. These findings are consistent with the notion that dividend policy is used to mitigate agency costs, particularly when this benefits the majority in the longer run

Tax concerns and agency concerns in dividend policy: Holding companies as a separating device

Higher dividends may create value by reducing agency costs, but may also destroy value by increasing tax payments. This paper shows empirically how stockholders use holding companies to establish indirect ownership through operating companies in order to obtain the benefit of lower agency costs while also avoiding the cost of higher taxes. We identify this relationship by studying the effect of a regulatory shift in Norway from zero to positive dividend taxes for individuals, whereas intercorporate dividends remained tax-exempt. We find that the use of holding companies increases strongly after the tax reform, and that operating companies with a higher potential for agency conflicts are more often owned by holding companies. Dividends paid from operating companies to holding companies are higher when the operating company would face more severe agency conflicts if such payments were not made. The payout is also higher and more stable from operating companies than from holding companies. These findings are consistent with the notion that stockholders choose organizational forms that separate tax effects from agency effects in dividend policy

When Does the Family Govern the Family Firm?

We find that the controlling family holds both the chief executive officer and chair positions in 79% of Norwegian family firms. The family holds more governance positions when it owns large stakes in small, profitable, low-risk firms. This result suggests that the family trades off expected costs and benefits by conditioning participation intensity on observable firm characteristics. We find that the positive effect of performance on participation is twice as strong as the positive effect of participation on performance. The endogeneity of participation, therefore, should be carefully accounted for when analyzing the effect of family governance on the family firm’s behavior.acceptedVersio