Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: This paper examines how ownership concentration affects investment performance, and in particular how deviations from the one share-one vote principle affect this ownership-performance relationship. Using a unique panel from the Nordic countries the so-called incentive and managerial entrenchment effects are isolated. To this end a measure of marginal q is used to evaluate performance. This is a theoretically and empirically more appropriate measure of performance as compared to Tobin’s q. The main finding is that ownership concentration improves performance, whereas dual-class shares reduce the incentive effect and enhance the managerial entrenchment effect. On average, firms with dual-class shares over-invest.

Keywords: investment; marginal q; ownership concentration; one share-one vote

JEL-codes: C23; G30; L25

31 pages, January 28, 2009

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