The Duration of Equity Ownership

33 Pages Posted: 9 Mar 2005

See all articles by Øyvind Bøhren

Øyvind Bøhren

BI Norwegian Business School; European Corporate Governance Institute (ECGI)

Richard Priestley

Norwegian Business School

Bernt Arne Ødegaard

University of Stavanger

Date Written: December 2005

Abstract

To date little is known about how long equity ownership lasts, what determines its length, and whether ownership duration is related to firm performance. Using a unique time series of equity holdings over eleven years, we find that on average the firm's largest owner stays less than three years and stays longer than owners with smaller stakes. The duration of financial institutions and foreigners is shorter than that of individuals and industrial firms. We show that ownership duration is duration dependent as the probability of closing an equity position is a function of how long the owner has held the stake. Ownership duration appears to match the duration of the firm's investment projects. We find no evidence that large owners vote by foot in the sense that bad news about earnings leads to duration ending. There is a negative relationship between ownership duration and a firm's performance in general, but the sign and strength of this relationship differs across owner types. Long duration by financial institutions and industrial corporations is negatively related to performance, whereas the opposite is true for individuals. This suggests that long term ownership may improve firm performance if the monitoring is direct as opposed to delegated.

Keywords: Corporate Governance, short-termism, Ownership Duration, Patient Owners, Impatience, Economic Performance

JEL Classification: G30

Suggested Citation

Bøhren, Øyvind and Priestley, Richard and Ødegaard, Bernt Arne, The Duration of Equity Ownership (December 2005). EFA 2005 Moscow Meetings, Available at SSRN: https://ssrn.com/abstract=676552 or http://dx.doi.org/10.2139/ssrn.676552

Øyvind Bøhren

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway
46410503 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Richard Priestley

Norwegian Business School ( email )

Nydalsveien
37
N-0442 Oslo, 0283
Norway
47 46410515 (Phone)

Bernt Arne Ødegaard (Contact Author)

University of Stavanger ( email )

UiS Business School
Stavanger, NO-4036
Norway

HOME PAGE: http://www6.uis.no/ansatt/odegaard

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