When is blockholding growth enhanced?


In this paper we test productivity differences among groups of firms with multiple controls. By using an exceptionally reach database, consisting of more than 4,000 Slovenian firms, each employing at least 50 employees or having their assets larger than two million euros (two criteria defining a small firm), and containing the information of firms’ ten largest owners and their financial statements for the period 2006-2014, we design all possible minimal controlling coalition types up to three dominant owners and examine which minimal controlling coalition type generates the highest expected total factor productivity (TFP). We show that the optimal blockholding coalition type, consistingof two members coalitions without dominant owners,was able to attain short-term efficiency of dispersed owners.Other blockholdingcoalition types stayed behind. A simple behavioristic principle is observed: short term efficiency of controlling coalition type decreases with the number of dominant owners and increases with the number of potential controlling (minimal) coalitions with different dominant owners.

Keywords: multiple shareholders, minimal controlling coalition, corporate governance, productivity of firm

[1] P. Aghion and P. Bolton, An Incomplete Contracts Approach to Financial Contracting, Review of Economic Studies, 59, no. 3, 473–494, (1992).

[2] F. Barca and M. Becht, (2001)., The Control of Corporate Europe.Oxford University Press, .

[3] M. Bennedsen and D. Wolfenzon, The balance of power in closely held corporations, Journal of Financial Economics, 58, no. 1-2, 113–139, (2000).

[4] B. S. Black, Shareholder passivity reexamined, Michigan Law Review, 89, no. 520, (1990).

[5] F. Bloch and U. Hege, Multiple shareholders and control contests. Unpublished working paper, HEC School of Management, (2003).

[6] V. Bole, J. Prašnikar, and D. Trobec, Policy measures in the deleveraging process: A macroprudential evaluation, Journal of Policy Modeling, 36, no. 2, 410–432, (2014).

[7] H. Cronqvist and R. Fahlenbrach, Large shareholders and corporate policies, Review of Financial Studies, 22, no. 10, 3941–3976, (2009).

[8] H. Demestz and K. Lehn, The structure of Corporate Ownership: Causes and Consequences, Journal of Political Economy, 93, no. 6, 1155–1177, (1985).

[9] P. Domadenik, J. Prašnikar, and J. Svejnar, Political Connectedness, Corporate Governance, and Firm Performance, Journal of Business Ethics, (2015).

[10] J. S. Earle, C. Kucsera, and Á. Telegdy, Ownership concentration and corporate performance on the budapest stock exchange: Do too many cooks spoil the goulash? Corporate Governance, 13, no. 2, 254–263, (2005).

[11] A. Dyck and L. Zingales, Private Benefits of Control: An International Comparison, Journal of Finance, 59, no. 2, 537–600, (2004).

[12] J. Franks and C. Mayer, Ownership and control.H, in In Siebert Trends in Business Organization: Do Participation and Cooperation Increase Competitiveness? J.C.B, H. Siebert, Ed., Mohr, Tubingen, B, 1995.

[13] R. J. Gilson, Globalizing Corporate Governance: Convergence of Form or Function, American Journal of Comparative Law, 49, no. 2, p. 329, (2001).

[14] A. Gomes and W. Novaes, Sharing of control versus monitoring as corporate governance mechanisms, Unpublished working paper, (2006).

[15] M. Henrekson and U. Jakobsson, The Swedish corporate control model: Convergence, persistence or decline? Corporate Governance, 20, no. 2, 212–227, (2012).

[16] C. G. Holderness and D. P. Sheehan, The role of majority shareholders in publicly held corporations. An exploratory analysis, Journal of Financial Economics, 20, no. C, 317–346, (1988).

[17] C. G. Holderness, A Survey of Blockholders and Corporate Control.Economic Policy Review, 9, no. 1, 51–64, (2003).

[18] B. Holmstrom and J. Tirole, Market liquidity and performance monitoring, Journal of Political Economy, 101, 678–709, (1993).

[19] K. Kraft, J. Stank, and R. Dewenter, Co-determination and innovation, Cambridge Journal of Economics, 35, no. 1, 145–172, (2011).

[20] R. La Porta, F. Lopez-De-Silanes, and A. Shleifer, The economic consequences of legal origins, Journal of Economic Literature, 46, no. 2, 285–332, (2008).

[21] E. Lehmann and J. Weigand, Does the governed corporation perform better? Governance structures and corporate performance in Germany, Corporate Governance and Corporate Finance: A European Perspective, 491–522, (2007).

[22] J. Levinsohn and A. Petrin, Estimating production functions using inputs to control for unobservables, Review of Economic Studies, 70, no. 2, 317–341, (2003).

[23] E. Maug, Large shareholders as monitors: Is there a trade-off between liquidity and control? Journal of Finance, 53, no. 1, 65–98, (1998).

[24] M. Pagano and A. Röell, The choice of stock ownership structure: Agency costs, monitoring, and the decision to go public, Quarterly Journal of Economics, 113, no. 1, 186–225, (1998).

[25] J. Pavlic Damijan, A. Gregoric, and J. Pranikar, Katholieke Universiteit Leuven: LICOS discussion papers, in and Prasnikar, p. 142, Ownership concentration and firm performance in Slovenia. Katholieke Universiteit Leuve, LICOS discussion papers, 2004.

[26] J. Prašnikar, D. Mikerevi, and D. Voje, Blockholding and organizational diversity: The case of a transition economy, Journal for East European Management Studies, 19, no. 3, 277–304, (2014).

[27] J. Pranikar, P. Domadenik, M. Koman, and J. Prasnikar, The Puzzle of State Ownership in Slovenia.Montenegrin Journal of Economics, 11, no. 2, 37–63, (2016).

[28] J. P. Sánchez-Ballesta and E. García-Meca, A meta-analytic vision of the effect of ownership structure on firm performance, Corporate Governance, 15, no. 5, 879–892, (2007).

[29] A. Shleifer and R. W. Vishny, Large Shareholders and Corporate Control, Journal of Political Economy, 94, no. 3, 461–488, (1986).

[30] A. Shleifer and R. W. Vishny, The takeover wave of the 1980s, Science, 249, 745–749, (1990).

[31] S. Thomsen and T. Pedersen, Ownership structure and economic performance in the largest European companies, Strategic Management Journal, 21, no. 6, 689–705, (2000).

[32] J. A. Tribo, P. Berrone, and J. Surroca, Do the type and number of blockholders influence R&D investments? New evidence from Spain, Corporate Governance, 15, no. 5, 828–842, (2007).

[33] J. Zwiebel, Block investment and partial benefits of corporate control, Review of Economic Studies, 62, no. 2, 161–185, (1995).