Determinants and Performance Effects of the Allocation of Ownership Rights in Consulting Firms

Abstract

This paper provides a joint assessment of the antecedents and the performance consequences of the allocation of ownership rights in professional service firms (PSFs). Drawing on established economic theory, we argue that the efficiency implications of alternative ownership arrangements drive the allocation of ownership rights. We test our arguments using a sample of 119 large and medium-sized consulting firms. The results confirm the significance of capital requirements, service standardization, business risk, and organization size as determinants of the allocation of ownership rights in these firms. We do not find ownership allocation per se to be a significant driver of performance. The results suggest that the optimal allocation of ownership rights is endogenously determined by the conditions under which consulting firms operate.

Keywords: Ownership rights, professional services