Managerial Ownership and Corporate Performance in Slovenian Post-Privatization Period

Abstract

While Slovenian post-privatization period has been characterized by a decline in the ownership of the non-managerial owners (employees), managers have been increasing their control. Moreover, given that the optimal ownership stake (as stated by the managers) in the year 2002 exceeded their actual share by 10.8 percentage points, we expect the managers to continue consolidating their ownership also in the future. The aim of our paper is to describe the main trends in the ownership of Slovenian corporations in the post-privatization period and to provide an answer to the basic economic question: what is the influence of the ongoing consolidation of managerial ownership on the performance of Slovenian firms. The empirical analysis testing this relationship is based on a panel of 182 Slovenian firms in the period 1995-99 and does not provide relevant evidence on positive effects of the increasing managerial control on the performance of Slovenian firms. If any, positive incentive effect is observed only in the firms with managers' holdings exceeding 10-percent, only with regards to firm financial performance (but not total factor productivity) and only in firms that are not listed on the capital market. Furthermore, the negative effect of the current gap between the optimal and actual managerial ownership seems to prevail over any positive incentive effect arising out of managerial ownership.

Keywords: corporate governance, optimal managerial ownership, ownership and control, corporate performance, ownership gap, incentive effect, entrenchment effect

JEL Classification: G3, G32