chirinko_02

Emory University
Department of Economics
Working Papers

Title:

Investor Protections And Concentrated Ownership: Assessing Corporate Control Mechanisms In The Netherlands

Number: 02-13

Author: Robert Chirinko , Hans van Ees, Harry Garretsen, and Elmer Sterken

Issue Date: December 2002

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.

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Title:	Investor Protections And Concentrated Ownership: Assessing Corporate Control Mechanisms In The Netherlands
Number:	02-13
Author:	Robert Chirinko , Hans van Ees, Harry Garretsen, and Elmer Sterken
Issue Date:	December 2002
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.