Ownership Concentration and Corporate Performance: A Causal Analysis with Japanese Panel Data
17 Pages Posted: 2 Oct 2008
This study examines the causal relation between ownership concentration and corporate performance by employing Granger causality tests in panel data models and considering investment and leverage as transmission mechanisms within a simultaneous equation system.
Using a panel of manufacturing firms listed on the first section of the Tokyo Stock Exchange from 1980 through 2005, we find that ownership concentration has a significant effect on contemporary and subsequent corporate performance. Specifically, a U-shaped relation of concentration to performance is consistent with the expropriation effect and monitoring effect of large shareholders. However, the study fails to find that changes in performance are accompanied by changes in ownership concentration due to the relatively illiquid securities market and stable shareholding arrangement in Japan.
Extending previous literature, the study sheds light on the endogenous and dynamic nature of the ownership-performance relationship. As exemplified by Japan, the results provide a general understanding for economies with concentrated ownership and further evidence of the international diversity of corporate governance.
The study recommends that policy makers and managers increase their awareness of the importance of ownership structure to generate better corporate governance, introduce diversified ownership structure to enhance performance, and adopt market-oriented reform measures to improve the liquidity and efficiency of the stock market.
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