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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26461
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| Title: | Ownership and Performance in Close Corporations: A Natural Experiment in
Exogenous Ownership Structure |
| Authors: | Nagar, Venky
Petroni, Kathy
Wolfenzon, Daniel |
| Keywords: | Close corporations
Closely-held corporations
Performance
Expropriation
Control Dilution
Ownership |
| Issue Date: | Feb-2002 |
| Series/Report no.: | FIN-02-017 |
| Abstract: | Close corporations account for 51 percent of the private sector output
and 52 percent of all private employment in the US. Understanding
governance issues facing these firms is therefore of considerable
importance. Legal scholars extensively recommend that the main
shareholder in close firms surrender some control to minority
shareholders at the outset in order to improve overall firm performance.
With shared control rights, no shareholder can take unilateral actions
for her own benefit at the expense of the firm and other shareholders.
In two independent samples of close corporations, we find this to be the
case, with shared ownership firms reporting substantially larger return
on assets (by 4 to 12 percentage points) and lower expense-to-sales
ratios. An important reason why this result establishes the role of
ownership in firm performance is the absence of a ready market for
shares in close corporations. This illiquidity makes the ownership
structure a historical, statistically predetermined measure, allowing us
to sidestep the ownership endogeneity problem confronting
ownership-performance studies of public firms. |
| URI: | http://hdl.handle.net/2451/26461 |
| Appears in Collections: | Finance Working Papers
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