Investor Protections and Concentrated Ownership: Assessing Corporate Control Mechanisms in the Netherlands

27 Pages Posted: 6 Mar 2003

See all articles by Robert S. Chirinko

Robert S. Chirinko

University of Illinois at Chicago, Department of Finance; CESifo (Center for Economic Studies and Ifo Institute)

Hans van Ees

University of Groningen

Harry Garretsen

Utrecht University - School of Economics; CESifo (Center for Economic Studies and Ifo Institute); Radboud University Nijmegen - Department of Economics

Elmer Sterken

University of Groningen - Faculty of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 2003

Abstract

The Berle-Means problem - information and incentive asymmetries disrupting relations between knowledgeable managers and remote investors - has remained a durable issue engaging researchers since the 1930's. However, the Berle-Means paradigm - widely-dispersed, helpless investors facing strong, entrenched managers - is under stress in the wake of the cross-country evidence presented by La Porta, Lopez-de-Silanes, Shleifer, and Vishny and their legal approach to corporate control. This paper continues to investigate the roles of investor protections and concentrated ownership by examining firm behaviour in the Netherlands. Our within country analysis generates two key results. First, the role of investor protections emphasized in the legal approach is not sustained. Rather, we find that performance is enhanced when the firm is freed of equity market constraints, a result that we attribute to the relaxation of the myopia constraints imposed by relatively uninformed investors. Second, ownership concentration does not have a discernible impact on firm performance, which may reflect large shareholders' dual role in lowering the costs of managerial agency problems but raising the agency costs of expropriation.

JEL Classification: G3

Suggested Citation

Chirinko, Robert S. and van Ees, Hans and Garretsen, Harry and Sterken, Elmer, Investor Protections and Concentrated Ownership: Assessing Corporate Control Mechanisms in the Netherlands (February 2003). CESifo Working Paper Series No. 864. Available at SSRN: https://ssrn.com/abstract=385105

Robert S. Chirinko (Contact Author)

University of Illinois at Chicago, Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

HOME PAGE: http://tigger.uic.edu/~chirinko/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Hans Van Ees

University of Groningen ( email )

Department of Economics
P.O.Box 800
9700 AH Groningen
Netherlands

Harry Garretsen

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands
+31 0 30 253 9810 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

Radboud University Nijmegen - Department of Economics ( email )

Nijmegen, 6500 HK
Netherlands
+31 24 361 5889 (Phone)
+31 24 361 1846 (Fax)

Elmer Sterken

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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