Hostname: page-component-586b7cd67f-tf8b9 Total loading time: 0 Render date: 2024-11-26T10:05:43.187Z Has data issue: false hasContentIssue false

Conflicts of Interest or Aligned Incentives? Blockholder Ownership, Dividends and Firm Value in the US and the EU

Published online by Cambridge University Press:  01 July 2005

Get access

Abstract

This paper examines the relationship between blockholder ownership, dividend policy and firm value in the largest EU and US companies during 1988–1998. Large owners may benefit other shareholders by effectively controlling company managers, but may also differ from minority investors by a preference for retained earnings, from which they derive private benefits of control. This paper analyses these effects in a non-technical way using simple correlation analysis. The level of blockholder ownership in continental Europe is found to be much higher than in the US/UK, whereas firm value is somewhat lower. A negative association is found between blockholder ownership and firm value in continental Europe, which indicates that the level of blockholder ownership is excessive from a minority shareholder viewpoint. Moreover, although blockholder ownership levels in Europe are not generally associated with lower dividends, increases in blockholder ownership are found to be associated with decreasing dividends, and the stock market appears to respond more favourably to increasing dividends in companies with a high level of blockholder ownership. In the US/UK, higher blockholder ownership is generally associated with lower dividends, which are again negatively correlated with firm value. In both the EU and the US, the results therefore point to conflicts of interest between large blockholders and minority investors, but more strongly so in Europe.

Type
Articles
Copyright
© 2005 T.M.C. Asser Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

This paper is part of the research project on corporate governance of companies with concentrated ownership – GOCOW – funded by the Danish Social Science Research Council. It has benefited from the generous comments of Delia Ionascu, who could easily have been its co-author. I am grateful to Michael Emil Ollinger for research assistance.