Insider ownership and corporate performance: evidence from Germany

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Date: Mar. 2008
From: Review of Managerial Science(Vol. 2, Issue 1)
Publisher: Springer
Document Type: Article
Length: 296 words

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Abstract :

Byline: Christoph Kaserer (1), Benjamin Moldenhauer (1) Keywords: Ownership structure; Shareholder structure; Insider ownership; Firm performance; Corporate governance; Agency costs; G32 Abstract: In this paper we address the question whether insider ownership affects corporate performance. Evidence from studies dealing with Anglo-Saxon countries is rather inconclusive, especially because results seem to be significantly affected by endogeneity. Economically, this is due to the fact that in these countries insider ownership seems to be mainly driven by management's compensation contracts. We argue that Germany is different in this regard, as insider ownership is often related to family control, stock-based compensation is less widespread, and the market for corporate control used to be less developed. Starting from this presumption, our data allows an unbiased observation as to whether insider ownership affects firm performance. Using a pooled data set of 648 firm observations for the years 2003 and 1998, we find evidence for a positive and significant relationship between corporate performance--as measured by stock price performance, market-to-book ratio and return on assets--and insider ownership. This relationship seems to be rather robust, even if we account for potential endogeneity by applying a 2SLS regression approach. Furthermore, the results hold for a sub-sample of firms that did not have a stock-based compensation program in place. Moreover, we find outside block ownership as well as more concentrated insider ownership to have a positive impact on corporate performance. Overall, the results indicate that ownership structure might be an important variable explaining the long term value creation in the corporate sector. Author Affiliation: (1) Center for Entrepreneurial and Financial Studies (CEFS) and Department for Financial Management and Capital Markets, Technische Universitat Munchen, Arcisstr. 21, 80290, Munchen, Germany Article History: Registration Date: 18/04/2007 Accepted Date: 13/03/2007 Online Date: 31/05/2007 Article note: CEFS Working Papier Series, No. 1/2005.

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Gale Document Number: GALE|A206241608