The Measurement of Firm Ownership and its Effect on Managerial Pay

37 Pages Posted: 18 Aug 2006

See all articles by Jeremy Edwards

Jeremy Edwards

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

Wolfgang Eggert

University of Freiburg - Institute of Public Finance; CESifo (Center for Economic Studies and Ifo Institute)

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy; Vienna University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: August 2006

Abstract

This paper uses German evidence to address two questions about corporate governance. The effects of ownership on corporate governance have received much recent attention, but very little of this has been devoted to the appropriate way to measure firm ownership. The results of this paper show that the conclusions reached about the effects of ownership on corporate governance can depend critically on the particular ownership measure used, and that the widely-used weakest-link principle is wholly unsatisfactory as a means of dealing with the issues raised by pyramid ownership structures. The paper also shows that greater ownership concentration typically weakens the link between managerial pay and firm profitability. This is inconsistent with the hypothesis, emphasised in the recent literature on the USA, that large owners are a complement to, rather than a substitute for, such a link.

JEL Classification: G32, L25, M52

Suggested Citation

Edwards, Jeremy and Eggert, Wolfgang and Weichenrieder, Alfons J., The Measurement of Firm Ownership and its Effect on Managerial Pay (August 2006). CESifo Working Paper Series No. 1774, Available at SSRN: https://ssrn.com/abstract=924734 or http://dx.doi.org/10.2139/ssrn.924734

Jeremy Edwards (Contact Author)

University of Cambridge - Faculty of Economics and Politics ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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

Wolfgang Eggert

University of Freiburg - Institute of Public Finance ( email )

D-79098 Freiburg
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy ( email )

United States

HOME PAGE: http://www.uni-frankfurt.de/fb02/weichenrieder/

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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