Dominant Owners and Financial Performance of Continental European Firms

Abstract

We examine countries in continental Europe to further refine the distinction between ability to control and actual control and whether a particular distinct shareholder distribution relates to company performance. As an extension to the existing literature, we provide a more nuanced taxonomy of controlling shareholder systems in different countries. In particular, we (1) operationalize the definition of “dominant” owner, to make this measure less sensitive to the disparity of voting and cash flow rights and (2) empirically test the active power of the dominant owners by investigating whether the economic performance of the firms from different countries is consistently affected by the nature of the company’s dominant owner. After disaggregating the overall sample by specific ownership type and by country, we find statistical support for the relationship between dominant ownership and performance being strongly positive for firms in which banks and families/individuals are dominant owners to being inversely related (p ≤ 0.1) when corporations are the dominant owners. Additional analysis discloses an even more complicated picture, suggesting that countries are not homogenous in terms of their ownership landscapes, and, hence, their effects on performance.

Keywords: accounting performance returns, corporate governance, dominant owners, regulatory environments

JEL Classification: M41, G32, G34, G15