A META-ANALYTIC VISION OF THE EFFECT OF OWNERSHIP STRUCTURE ON FIRM PERFORMANCE 879

A Meta-Analytic Vision of the Effect

of Ownership Structure on Firm
Performance
Juan P. Sánchez-Ballesta* and Emma García-Meca

There is a considerable volume of research on the effects of ownership structure on firm

performance. However, the empirical results in this field are often conflicting and inconsistent.
A meta-analysis based on 33 studies allows an integration of the results on the association
between insider ownership, ownership concentration and firm performance. The findings
show that governance system, measurement of performance, and control for endogeneity
moderate the effect of ownership on firm performance.

Keywords: meta-analysis, ownership structure, firm performance, corporate governance

Introduction Servaes, 1990; Agrawal and Knoeber, 1996;

Demsetz and Villalonga, 2001; de Miguel et al.,

O ne of the most widely discussed topics in

both the academic literature and the
business press concerns how to design corpo-
rate mechanisms that lead to most effective
decision-making. Corporate governance can
be seen as the mean to reduce the agency costs
produced by aligning managerial and share-
holders’ interests, which should lead to a
higher firm valuation. Jensen and Meckling
(1976) showed formally how the allocation
of shares among insiders and outsiders can
influence the value of the firm. Since then, the
relationship between ownership and firm
performance has attracted special attention.
Theoretical and empirical literature usually
considers concentration of ownership and
insider ownership as the main corporate
mechanisms that affect firm value. However,
among researchers, beliefs about the perfor-
mance effects of ownership structure are not
nearly so uniform.
The empirical evidence regarding the rela-
tionship between ownership concentration
(blockholder ownership), measured by the
fraction owned by the largest shareholders
or by the significant shareholders, and firm
value is mixed, and provides very little in the
way of consistent results (e.g., McConnell and
2004; Thomsen et al., 2006). Despite the wealth
of research, the question remains whether
large owners contribute to the solution of
agency problems or whether they exacerbate
them. The majority of empirical research states
that if monitoring by owners improves the
quality of managerial decisions, and if there
are no other effects of ownership concentra-
tion, performance and concentration will be
positively correlated (Shleifer and Vishny,
1986). The argument is that owners wish to
maximise profits, but their designated agents
(managers) may have neither the interest
nor the incentive to do so (Berle and Means,
1932). Consequently, ownership concentration
is expected to affect performance directly,
mainly due to the positive effects on the incen-
tives to increase profits, which supports the
hypothesis that large shareholders are active
monitors in companies and that this monitor-
ing helps increase the profitability of the
firm (monitoring hypothesis). Nevertheless,
according to agency theory, high concentration
of ownership may become ineffective for *Address for correspondence:
taking value-maximising decisions. In this University of Murcia, Account-
sense, some of the empirical evidence (Morck ing and Finance, Campus
Espinardo, Facultad Economía
et al., 1988; McConnell and Servaes, 1990; Her- y Empresa, Murcia, 30100,
malin and Weisbach, 1991; Claessens et al., Spain. Email: juanpsb@um.es.

© 2007 The Authors

Journal compilation © 2007 Blackwell Publishing Ltd, 9600 Garsington Road,
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880
2002) shows that at first, when ownership
increases, firm value increases as well, because
of the benefits of a better monitoring, but when
ownership is too concentrated the value of the
firm starts to decrease. These studies support
the positive-alignment effect over lower ranges
of ownership, and the negative entrenchment
effect over higher ranges of ownership.
The non linear relationship between owner-
ship concentration and firm performance is
due to some costs associated to ownership
concentration. The main one, according to
Shleifer and Vishny (1997) and Johnson et al.
(2000), is the expropriation effect of minority
shareholders (expropriation hypothesis). This
effect happens when larger owners use the
company’s resources for their own benefit, at
the expense of the minority shareholders. This
ex-post expropriation by controlling share-
holders is likely to lead to sub-optimal levels
of investment by minority investors and other
stakeholders (Maher and Anderson, 1999),
and, according to Faccio and Lang (2002), this
effect happens in firms where large share-
holders are present. Therefore, due to the
confounding influences of the monitoring and
expropriation effects, it is not possible, a priori,
to predict the relationship between ownership
concentration and firm performance.
A number of empirical studies have also
provided important insights into the relation-
ship between firm performance and insider
ownership. Despite these insights, the evi-
dence is far from being conclusive. Concerning
the proportion of shares owned by insiders,
the agency theory states that when the inside
ownership increases (managers and board
members), the interests with outside owners
are aligned (convergence-of-interests), due to
the managers’ natural tendency to allocate the
firm’s resources to their own best interest
(Jensen and Meckling, 1976), and conse-
quently, the conflicting interests between man-
agers and outside shareholders are likely to be
solved. On the other hand, owner-managers
and directors may make value reducing deci-
sions in order to safeguard their positions
in the firm, expropriating wealth from the out-
siders and hence decreasing the value of the
firm. Harris and Raviv (1988) and Stulz
(1988) explain management entrenchment by
arguing that managers may tend to increase
leverage in order to inflate the voting power of
their shareholdings, and reduce the discipline
of the market for corporate control. Jensen
(1993) suggests that as managerial ownership
increases, the likelihood of having non-
executive directors diminishes because the
function of these directors is to exercise poten-
tial decision control and, in addition, the board
tends to oversize. In this situation, communi-
Volume 15 Number 5 September 2007
CORPORATE GOVERNANCE
cation and co-ordination problems will in-
crease and the board will be more difficult to
monitor (Faccio and Lasfer, 1999). Therefore,
as Morck et al. (1988) suggest, managers re-
spond to two opposing forces, and the relation
between insider ownership and value depends
on which force dominates in any particular
range of managerial equity ownership. Stulz
(1988), McConnell and Servaes (1990), Steiner
(1996) and Han and Suk (1998), all find that in
the United States the relationship between
firm value and managerial ownership is non-
linear, although the inflection points found in
these studies are not homogeneous (50%; 50%;
36.6% and 41.8%, respectively).
Despite the substantial empirical research
undertaken in the ownership determinants of
firm performance, the findings reported are
characterised by fragmentation and diversity,
thus limiting theory development in this field.
According to Leonidou et al. (2002), in order to
test the validity and generality of this frag-
mented previous research it is necessary to
review, synthesise, and assess relevant empiri-
cal research. Such an understanding is impor-
tant because investigation efforts took place
at different points in time, in varying geo-
graphical contexts, and with different termi-
nologies, definitions, and operationalisations
of variables.
Meta-analysis allows us to apply statistical
procedures to the results obtained from a set
of empirical studies in order to integrate
them, achieve a quantitative generalisation,
and thus find effects or relationships which are
not obvious in other ways of summarising
research, e.g. narrative approaches (Hunter
and Schmidt, 1990; Rosenthal, 1991). As we
have identified 33 relevant empirical studies
which examine the relationship between own-
ership structure and financial performance,
we are able to provide a meta-analytic review
of this area of research.
Our two primary objectives are: (1) to estab-
lish some quantitative generalisation of the
effect of ownership structure on firm perfor-
mance, and (2) to determine whether differ-
ences in studies are due to moderating effects
such as the measure of performance and
insider ownership, the system of corporate
governance and the methodology employed in
the study. The link between ownership struc-
ture and firm performance remains to be
clearly established. Examination of such a link
is critical in order to know how to design cor-
porate governance mechanisms that will moti-
vate managers to make choices for the firm that
may improve performance.
This study offers new insights into the rela-
tionship between ownership structure and
firm value. Consideration of the potential for
© 2007 The Authors
Journal compilation © Blackwell Publishing Ltd. 2007
A META-ANALYTIC VISION OF THE EFFECT OF OWNERSHIP STRUCTURE ON FIRM PERFORMANCE
non-linear relationships in the ownership-
performance area is an important characteris-
tic of this meta-analysis. Dalton et al. (2003), in
a previous meta-analysis, only examine mono-
tonic relationships among equity characterisa-
tions and performance measures. However,
since most recent studies have shown that
non-linear relationships between ownership
structure and financial performance are more
plausible, this means that the Pearson correla-
tion coefficient (r), which is the effect size
measure that they use in their meta-analysis, is
not an adequate measure of the relation
between both variables. Ownership structure
may have an important non-linear effect on
financial performance, and yet r may be non-
significant, as happens in their results.
Therefore, their conclusion that their find-
ings do not support agency theory’s proposed
relationship between ownership and firm per-
formance may be subject to this limitation. On
the other hand, in their integration of findings
they do not impose the condition that the per-
formance indicator was the dependent vari-
able, nor that these variables were necessarily
the main focus of the article, which may also
bias their results, since disregard of these
conditions only allow the collection of simple
correlations.1 Although we believe that the
contribution of the Dalton et al. (2003) study
to the examination of linear relationships be-
tween ownership structure and performance
is a very important one, we continue at the
point they suggest, with attention to the po-
tential non-linearities of this relation. Thus,
we examine only those studies in which per-
formance is the dependent variable and we
allow for interdependence between owner-
ship structure and financial performance.
Furthermore, we examine the potential
moderating effects that the corporate gover-
nance system and the control for endogeneity
play in these relations. Therefore, to conduct
our meta-analysis properly we do not consider
r as effect size. We use the significance
(p-value) of the different terms (linear, qua-
dratic) of the ownership structure variables in
those articles where financial performance is
treated as the dependent variable and owner-
ship structure as the independent, or when
both are considered endogenous and simulta-
neously determined. To assess the associative
strength of our variables we use the Stouffer
method of adding Z-values (Rosenthal, 1991).
The method of adding Z-values has been also
used recently in studies such as Leonidou et al.
(2002) and Hay et al. (2006).
Work in this area leads to determining the
underlying factors contributing to economic
growth and to ascertaining the key factors that
shape the effectiveness of different corporate
© 2007 The Authors
Journal compilation © Blackwell Publishing Ltd. 2007
881
governance mechanisms. As a result, this
paper tries to provide valuable input for the
work of Committees, such as the OECD
Council or the Commission of the European
Communities, which request continuous ana-
lytical work in this field. In particular, our evi-
dence is also important to financial statement
users wishing to know where to focus when
seeking to identify governance factors which
are most highly associated with firm value.
Moderators for the meta-analysis
A review of the extant literature for ownership
structure and firm performance suggests a
number of potential moderating influences.
One of these moderating factors consists of
differences between the various measures of
organisational performance used in corporate
governance research. Some studies (Zahra
and Pearce, 1989; Rhoades et al., 2001) suggest
that part of the observed variation in owner-
ship-performance relationship is due to the
use of different measures of performance.
Extant research addressing governance struc-
tures and financial performance has relied
on accounting-based indicators (Return on
Assets, Return on Equity, and Return on Sales)
and market-based indicators (Tobin’s Q ratio),
with the most employed being Tobin’s Q ratio.
Financial accounting measures have been fre-
quently criticised due to: (1) they are subject to
manipulation; (2) they may systematically
undervalue assets; or (3) they may create dis-
tortions. On the contrary, market-based
returns do reflect risk-adjusted performance,
although they are often subject to forces
beyond management control. Following
Dalton et al. (1998) and Rhoades et al. (2001),
we consider the nature of the performance
indicator (accounting versus market-based) as
a moderating variable and propose the follow-
ing hypothesis:
H1: The nature of the performance measure
indicator moderates the relationship between
ownership structure and organisational
performance.
Disagreements among researchers can also be
traced according to the different context. While
there has been some recognition that the own-
ership concentration-firm value relationship
may not be applicable in all national contexts
(Gedajlovic and Shapiro, 1998), there is little
empirical evidence regarding the effect of
national differences in ownership structure on
firm performance. There exist striking dif-
ferences between countries’ corporate gover-
nance systems due to a number of factors,
including laws, taxes, capital market character-
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882
istics, culture, history, and industrial organisa-
tion. While the UK and US system (market-
based system) is characterised by a widely
dispersed ownership and the basic conflict
of interest is between managers and share-
holders, the governance system typical of
Continental Europe (control-based system) is
characterised by concentrated ownership and
the basic conflict is between holding compa-
nies, banks and families (who are the main
controlling shareholders) and weak share-
holders. These differences, determined by the
legal systems and investor protection, are
likely to influence the relationship between
ownership structure and firm performance. In
this line, Thomsen et al. (2006) find no signifi-
cant association between blockholder owner-
ship and firm value in either the US or UK.
Nonetheless, they find a negative association
between blockholder and firm value in Conti-
nental Europe. Thus we propose the following
hypothesis:
H2: Corporate governance system moderates the
relationship between ownership structure and
organisational performance.
Although prior studies have mostly ignored
the existence of endogeneity between the vari-
ables, recent research has pointed to the pos-
sibility of a reverse direction of causality from
economic performance to ownership struc-
ture. That is, performance is at least as likely to
affect ownership structure as ownership struc-
ture is to affect performance. Kole (1996) evi-
dences that insider ownership is endogenous,
arguing that causality may operate in the
opposite direction, from performance to own-
ership. As noted by Demsetz and Villalonga
(2001), the divergence between insider in-
formation and market-based expectations for
firm performance may create the incentive for
managers to change their holdings according
to their expectations of future firm perfor-
mance; and the performance-based compensa-
tion in the form of stock options also raises the
possibility that firm performance can affect
managerial ownership. Other studies suggest
that the unobserved heterogeneity may also
cause potencial endogeneity in the ownership-
performance relation since there are omitted
variables which may affect both performance
and ownership structure, leading to spurious
relations when they are not controlled
(Himmelberg et al., 1999; Palia, 2001). For
example, Himmelberg et al. (1999) argue that
the unobserved level of intangible assets
induces a positive correlation between mana-
gerial ownership and Q. Firms with high pro-
portion of unobserved intangible assets will
require a higher level of managerial owner-
ship to align interests. At the same time, they
Volume 15 Number 5 September 2007
CORPORATE GOVERNANCE
will also have a higher Q value because market
will value intangibles but the book value of
assets (in the denominator of Q) will under-
state the value of intangibles. Similarly, the
quality of the monitoring technology is
another unobserved variable which may affect
both the level of insider ownership and firm
value. Although firms with superior monitor-
ing technology need lower level of insider
ownership to align incentives, these firms will
have also a higher valuation because fewer
resources will be diverted to managerial per-
quisites. In order to avoid these problems,
several studies use panel data econometrics
and estimate the models with instrumental
variables using two-stage least squares (2SLS)
and the generalised method of moments
(GMM), which in some studies, as in Himmel-
berg et al. (1999) and Demsetz and Villalonga
(2001), leads to significant effects in Ordinary
Least Squares (OLS) which become non-
significant when endogeneity is controlled.
H3: Control for endogeneity moderates the rela-
tionship between ownership structure and
organisational performance.
Our last moderator variable for the relation
between firm value and insider ownership is
the measurement of insider ownership. Dalton
et al. (2003) identify different categories of
insider ownership used in empirical research:
CEO equity, managerial equity, officer and
director equity, inside board equity, and out-
side board equity. Although in their initial
contribution Jensen and Meckling (1976)
focused on managerial ownership as incentive
to align the interests of managers and share-
holders, this same argument of agency theory
has been extended to board members. As a
consequence, empirical studies employ differ-
ent measures to test the effect of insider own-
ership on firm performance, the most common
of which are: proportions of shares held
by managers, board members, and officers
and directors. Since previous meta-analyses
suggest that the measurement of the variables
can be a moderator effect (Dalton et al., 1998;
Combs and Ketchen, 2003) we test whether in
spite of being used as measures of the same
concept in most of the primary studies,
the different operational definitions of in-
sider ownership may be a moderator of the
relation between insider ownership and firm
performance.
H4: The measure of insider ownership moder-
ates the relationship between ownership struc-
ture and organisational performance.
In summary, we have identified four moderat-
ing variables: the nature of the performance
measure, the corporate governance system, the
© 2007 The Authors
Journal compilation © Blackwell Publishing Ltd. 2007
A META-ANALYTIC VISION OF THE EFFECT OF OWNERSHIP STRUCTURE ON FIRM PERFORMANCE
control for endogeneity, and the measurement
of insider ownership. We focus on these factors
since, according to previous literature, they
may have played an important role in the
apparently inconsistent findings observed to
date.
Methodology
Meta-analysis is a technique which allows rig-
orous integration of the findings of prior
studies on a particular topic in order to assess
the overall effect of the existing studies. Nar-
rative literature reviews can be misleading
because different researchers may reach dif-
ferent conclusions about a set of individual
studies, due to variations in characteristics
such as sample size and time period (Hunter
and Schmidt, 1990). However, meta-analysis
technique allows researchers to evaluate the
effect of these different data characteristics
(moderators) on the results (Wolf, 1986;
Rosenthal, 1991; Hunter and Schmidt, 1990).
The main advantage of meta-analysis over a
narrative review is the use of the effect size,
i.e., “the degree to which the phenomenon is
present in the population” (Cohen, 1977,
pp. 9–10) as a variable which is sensitive to
findings of different strength across studies.
Thus, meta-analysis involves statistical analy-
ses which reveal effects or relationships that
are less obvious in other approaches to sum-
marising research. As our study focus on the
influence of ownership structure on firm
performance, we use meta-analysis to quanti-
tatively analyse the results of the most relevant
studies on the effect on firm value of the main
dimensions of ownership structure: insider
ownership, which is usually measured as the
proportion of shares held by insiders, and
ownership concentration (Block), which is
usually measured as the proportion of shares
held by the largest shareholders or by sig-
nificant shareholders (e.g., McConnell and
Servaes, 1990; Agrawal and Knoeber, 1996;
Demsetz and Villalonga, 2001; De Miguel et al.,
2004; Boubraki et al., 2005). Since the articles
that we meta-analysed in this study provide
different measures to refer to insider owner-
ship, and even some of them do not even
clarify the operational definition of insider
ownership, we adopt the wider definition of
this dimension of ownership related to the
articles collected: the proportion of shares held
by officers and directors, board members
and managers. Nevertheless, in the moderator
effect analysis we adopt three categories of
insider ownership: officers and directors
equity, board members equity, and manage-
ment equity, to evaluate their effects on firm
© 2007 The Authors
Journal compilation © Blackwell Publishing Ltd. 2007
883
value. These are the only possible subgroups
attending to the definitions and the number of
studies. This classification has been also used
by Dalton et al. (2003). Regards ownership con-
centration, the operational definitions through
the meta-analysed studies are quite similar:
the proportion of shares held by shareholders
holding at least 5 percent of a company, and
the proportion of shares held by major share-
holders. We adopt below ownership concen-
tration both of them, which we could call large
blockholders.
Literature search and sample
To construct our sample, we searched for
articles that reported findings on the relation-
ship between firm performance and both
dimensions of ownership structure, insider
ownership and ownership concentration,
when financial performance is treated as the
dependent variable and ownership structure
as the independent, or when both are consid-
ered endogenous and simultaneously deter-
mined. We used keywords to search in
databases such as ScienceDirect, EJS Ebsco,
Blackwell, Emerald, and ABI Inform. We also
consulted the main journals of accounting,
finance, and general business where this kind
of articles are usually published (Journal of
Accounting and Economics, Journal of Corporate
Finance, Strategic Management Journal, Journal
of Finance, Journal of Business, Finance, and
Accounting, Corporate Governance: An Interna-
tional Review, Journal of Financial Economics,
Review of Financial Studies, etc.). Finally, refer-
ences in articles were also examined to iden-
tify other sources. This led to the identification
of 33 studies from 1988 to 2006 which exam-
ined different relationships (linear and non-
linear) between the ownership structure
variables and firm performance. The basic
characteristics of the studies included in our
analysis are detailed in Table 1.
Meta-analytic technique
We used meta-analysis techniques which are
similar to those used in previous studies, such
as Leonidou et al. (2002) and Hay et al. (2006),
to combine the results of a sample of previous
research. The method we employ combines
the p-values of a set of studies which examine
the relationship between two variables to get
an overall Z statistic and its associated p-value.
This new p-value is an estimate of the prob-
ability that the combined set of results might
have been obtained if the null hypothesis of no
relationship between both variables were true
(Rosenthal, 1991, p. 85). To get this estimate,
we took each relationship between an owner-
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884 CORPORATE GOVERNANCE

Table 1: Sample

Study Period Performance measures Ownership structure

variables

Adams and Santos (2006) 1966 Q, ROA Insider ownership

Agrawal and Knoeber (1996) 1987 Q Insider ownership
Block
Beiner et al. (2006) 2002 Q Block
Boubraki et al. (2005) 1980–2001 ROS Block
Callahan et al. (2003) 1989–1992 Q Insider ownership
Block
Chen et al. (2006) 1987–1995 Q Insider ownership
Cho (1998) 1991 Q Insider ownership
Coles et al. (2001) 1984–1988 Economic Value Added, Insider ownership
Market Value Added Block
Cui and Mak (2002) 1994–1998 Q Insider ownership
Davies et al. (2005) 1995 Q Insider ownership
Block
De Miguel et al. (2004) 1990–1999 Q Insider ownership
Block
Demsetz and Villalonga (2001) 1976–1980 Q Insider ownership
Block
Earle et al. (2005) 1996–2001 ROE Block
Farrer and Ramsay (1998) 1995 Q Insider ownership
Fich and Shivdasani (2006) 1989–1995 Q, ROA, ROS Insider ownership
Gedajlovic and Shapiro (1998) 1986–1991 ROA Block
Hermalin and Weisbach (1991) 1971, 1974, 1977, 1980, 1983 Q Insider ownership
Himmelberg et al. (1999) 1982–1992 Q Insider ownership
Hovey et al. (2003) 1997–1999 Q Block
Joh (2003) 1993–1997 Ordinary income to assets, Block
Net income to assets
Keasey et al. (1994) 1986–1988 ROA Insider ownership
Lehmann and Weigand (2000) 1991–1996 ROA Block
Loderer and Martin (1997) 1978–1988 Q Insider ownership
Maury (2006) 1998 Q, ROA Block
McConnell and Servaes (1990) 1976; 1986 Q Insider ownership
Morck et al. (2000) 1986 Q Insider ownership
Block
Palia (2001) 1981–1993 Q Insider ownership
Randoy and Goel (2003) 1996–1998 Q, ROA lagged Insider ownership
Block
Short and Keasey (1999) 1989–1992 Market to Book Insider ownership
Block
Thomsen and Pedersen (2000) 1990–1995 Market to Book Block
Thomsen et al. (2006) 1990–1998 Q, ROA Block
Yeh (2005) 1998 Market to Book Block
Yermack (1996) 1984–1991 Q Insider ownership

Q: Tobin’s Q.
ROA: Return on Assets.
ROS: Return on Sales.
ROE: Return on Equity.

ship structure variable and firm performance To perform this conversion, we took the
and we converted one-tailed p-values to t-statistic from each relationship between own-
Z-scores, assigning positive signs to positive ership structure and performance and, taking
effects and negative signs to negative effects. into account its degrees of freedom, we

Volume 15 Number 5 September 2007 © 2007 The Authors

Journal compilation © Blackwell Publishing Ltd. 2007
A META-ANALYTIC VISION OF THE EFFECT OF OWNERSHIP STRUCTURE ON FIRM PERFORMANCE
obtained its associated one-tailed p-value.
Then, we converted this p-value to Z statistic;
and secondly, we applied the Stouffer method
of adding Z-values to obtain the overall asso-
ciation for those articles which examined that
relationship. This method adds the Z-values
obtained from each sample and then divides
this value by the square root of the number of
samples combined, which is distributed as a Z.
Thirdly, we converted this Z-score into two-
tailed p-value to test the null association
between the ownership structure variable and
firm performance (Rosenthal, 1991).
When a study reported different results
from independent samples (several countries),
following studies such as Gooding and
Wagner (1985), Tosi et al. (2000) and Hay et al.
(2006) the different effect sizes were con-
sidered. From these 33 primary studies we
obtained the following effect sizes:
a) Linear relationships: 16 linear relationships
between insider ownership and firm
performance, and 21 linear relationships
between ownership concentration and firm
performance were tested.
b) Non-linear relationships: 14 quadratic rela-
tionships between insider ownership and
firm performance, and 15 quadratic rela-
tionships between ownership concentra-
tion and firm performance. Moreover, 6
articles included at least one cubic term on
insider ownership.2
Since primary studies tested different
expressions (linear, quadratic, cubic) of the
relationship between ownership structure vari-
ables and firm performance, we conducted
several meta-analyses according to the differ-
ent relationships examined in the primary
studies, i.e., for studies which only include a
linear term we carried out a meta-analysis to
assess the significance of this linear relation-
ship; however, when non-linear relationships
were considered, we conducted different meta-
analyses, one to assess the significance of the
linear term and another to assess the signifi-
cance of the quadratic term. This solution
avoids mixing the significance of a linear term
from a regression which only includes this term
with the significance of a linear term from a
regression which tests a non-linear relation.
The analyses undertaken were the following:
a) Firstly, we examined the overall influence
of both dimensions of ownership structure
(insider ownership and ownership concen-
tration) on firm performance.
b) Secondly, we analysed the effect of the
ownership structure variables on different
measures of firm performance (market
measures, accounting measures), as sug-
© 2007 The Authors
Journal compilation © Blackwell Publishing Ltd. 2007
885
gested by Dalton et al. (1998), Wagner et al.
(1998) and Rhoades et al. (2001).
c) Thirdly, we examined variations in the
effect of the ownership structure variables
on firm performance according to the cor-
porate governance system, since we can
expect that this factor moderates the rela-
tionship between ownership structure and
firm performance.
d) Fourthly, we analysed variations in the
effect of the ownership structure variables
on firm performance according to the
methodology employed (if primary studies
control or not for the endogeneity of
the ownership structure-firm performance
relationship).
e) Finally, we studied the influence on firm
performance of insider ownership mea-
surement (officers and directors equity,
board members equity, and management
equity).
Results
We summarise the major results separately,
according to the dimension of ownership
structure studied.
Ownership concentration
The results of the overall meta-analysis for the
linear relationship between ownership con-
centration and firm performance shown in
Table 2 do not support the hypothesis that
large shareholders are active monitors in com-
panies and that this monitoring helps increase
the profitability of the firm, as we expected
(p = 0.14). Nevertheless, since the homogene-
ity test is rejected, the evidence shown in
Table 3 also indicates that this relationship
is moderated by (1) corporate governance
system; (2) endogeneity; and (3) performance
measure.
Consistent with the conjecture by Demsetz
(1983), the linear relationship between owner-
ship concentration and firm performance has a
stronger significance for continental system
countries (p < 0.01). For Anglo-Saxon corpo-
rate systems, however, the effect on perfor-
mance of ownership concentration is weaker
(p < 0.1). It is also notable that while the effect
of ownership concentration on accounting-
based performance measures is positive and
linear, the effect of ownership concentration
on market-based performance measures is
non-linear, supporting both the monitoring
and expropriation hypotheses. That is, the
stock market predicts decreasing returns to
ownership concentration after a certain level,
whereas accounting returns are positive in a
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886
Table 2: Ownership structure-firm performance relationship (overall)
Number of studies
Ownership concentration
Linear relationship
Linear term
Non-linear relationship
Linear term
Quadratic term
Insider ownership
Linear relationship
Linear term
Non-linear relationship
Linear term
Quadratic term
Cubic term
linear way. The findings show the negative
expectations of the stock market about the ef-
fectiveness of ownership concentration when
it is too high, due to the expropriation effect
of minority shareholders. This expropriation
effect is not captured in accounting measures,
which is consistent with Dalton et al. (1998),
who consider that financial accounting mea-
sures do not normally account for shareholder
investment risk. Thus, the findings show that
performance measure is an important modera-
tor of the ownership concentration/perfor-
mance relationship.
For those studies which examined non-
linear relationships, there are also differences
according to the system of corporate gover-
nance. In those studies which examined
Anglo-Saxon or continental countries sepa-
rately, only the quadratic term was significant,
which supports that ownership concentration
has a positive effect on performance in these
countries, but only in a determined range of
the sample. This effect is stronger in continen-
tal countries, which would support the asser-
tion of Denis and McConnell (2003), who,
based on Shleifer and Vishny (1997) and La
Porta et al. (1998), argue that ownership has a
more positive effect on firm value in countries
with lower levels of investor protection
because it is more important to counter mana-
gerial agency problems in these economies.
On the other hand, those studies which analy-
sed a mixed sample with different countries
found evidence of non-linear relationships.
There is also evidence of the moderating
effect of endogeneity on the ownership/firm
performance relationship. When we divide the
sample according to the control for endogene-
ity, our results show that while in those studies
Volume 15 Number 5 September 2007
CORPORATE GOVERNANCE
p-value Sign c2 p-value
21 0.140 + 0.000
15 0.063 + 0.000
15 0.421 + 0.000
16 0.000 + 0.024
14 0.000 + 0.000
14 0.000 - 0.000
6 0.000 + 0.448
that do not address the endogeneity problem
there exists a positive and linear influence of
ownership concentration on firm performance
(p < 0.01), this effect disappears in those
studies that treat ownership concentration as
an endogenous variable. Nevertheless, in
studies that deal with non-linearities at least
one of both terms, linear or quadratic, is sig-
nificant regardless of whether the endogeneity
is controlled or not.
Insider ownership
The results of the overall meta-analysis for
the relationship between insider ownership
and firm performance in Table 2 indicate that
in linear regressions insider ownership has
shown a positive and significant effect on firm
value (p < 0.01), confirming that insider own-
ership is an important mechanism for aligning
the interests of insiders with the rest of share-
holders. As in the overall meta-analysis, the
relation between insider ownership and
performance, shown in Table 4, is positive and
significant whichever the corporate gover-
nance system and the methodology employed
(control or not for endogeneity). Nevertheless,
the higher significance of insider ownership in
Anglo-Saxon countries (p < 0.01) confirms the
expectations of a superior monitoring role of
insiders in these countries. In a similar way, the
positive effect of insider ownership on firm
performance is stronger when endogeneity is
not under control.
We also relied on the measure of per
formance variable as a moderator of the
insider/performance relationship. The results
give support to the assertion that insider
ownership/performance relationship is influ-
© 2007 The Authors
Journal compilation © Blackwell Publishing Ltd. 2007
A META-ANALYTIC VISION OF THE EFFECT OF OWNERSHIP STRUCTURE ON FIRM PERFORMANCE 887

Table 3: Ownership concentration-firm performance relationship by corporate governance, firm perfor-

mance and endogeneity

Ownership concentration Number of studies p-value Sign

Corporate governance
Anglo-Saxon Linear relationship
Linear term 8 0.077 -
Non-linear relationship
Linear term 4 0.930 -
Quadratic term 4 0.014 +
Continental Linear relationship
Linear term 10 0.001 +
Non-linear relationship
Linear term 8 0.237 -
Quadratic term 8 0.001 +
Mixed Linear relationship
Linear term 3 0.504 +
Non-linear relationship
Linear term 3 0.000 +
Quadratic term 3 0.000 -
Performance
Market Linear relationship
Linear term 14 0.629 -
Non-linear relationship
Linear term 5 0.000 +
Quadratic term 5 0.003 -
Accounting Linear relationship
Linear term 7 0.001 +
Non-linear relationship
Linear term 8 0.168 -
Quadratic term 8 0.005 +
Endogeneity
Do not control for Linear relationship
endogeneity Linear term 12 0.003 +
Non-linear relationship
Linear term 7 0.581 -
Quadratic term 7 0.070 +
Control for endogeneity Linear relationship
Linear term 9 0.244 -
Non-linear relationship
Linear term 8 0.002 +
Quadratic term 8 0.551 -

enced by the nature (accounting vs. market-
based) of the performance ratios, since this
relationship is only statistically significant
for market-based financial performance mea-
sures, i.e., Tobin’s Q (p < 0.01). It may suggest
that the stock market expects that when the
inside ownership increases, the conflicting in-
terests between managers and outside share-
holders are likely to be solved, because their
interests with outside owners will be aligned
(convergence-of-interests). This result is not
confirmed by the real accounting returns,
which are frequently criticised as being too
easily manipulated by managers. The find-
ings suggest that the optimistic expecta-
tions regarding the alignment of insiders only
occur when market measures are used, and
this leads to the conclusion that there are rel-

© 2007 The Authors Volume 15 Number 5 September 2007

Journal compilation © Blackwell Publishing Ltd. 2007
888 CORPORATE GOVERNANCE

Table 4: Insider ownership-firm performance relationship by corporate governance, firm performance and
endogeneity

Insider ownership Number of studies p-value Sign

Corporate governance
Anglo-Saxon Linear relationship
Linear term 13 0.000 +
Non-linear relationship
Linear term 11 0.000 +
Quadratic term 11 0.000 -
Continental Linear relationship
Linear term 3 0.056 +
Non-linear relationship
Linear term 3 0.002 +
Quadratic term 3 0.089 +
Performance
Market Linear relationship
Linear term 10 0.000 +
Non-linear relationship
Linear term 13 0.000 +
Quadratic term 13 0.001 -
Accounting Linear relationship
Linear term 6 0.494 +
Non-linear relationship
Linear term
Quadratic term
Endogeneity
Do not control for Linear relationship
endogeneity Linear term 11 0.000 +
Non-linear relationship
Linear term 7 0.000 +
Quadratic term 7 0.000 -
Control for endogeneity Linear relationship
Linear term 5 0.056 +
Non-linear relationship
Linear term 7 0.093 +
Quadratic term 7 0.667 -

evant moderating effects based on the nature
of the performance indicators.
In non-linear regressions, the results of the
overall meta-analysis for the relation between
insider ownership and performance displayed
in table 2 suggest a non linear association
which supports the convergence-of-interests
hypothesis for the first and last range of
ownership (p < 0.01), and the entrenchment
hypothesis (p < 0.01) in the middle. Besides,
the cubic term is the only one where there is
no heterogeneity in the results of the differ-
ent samples, since we cannot reject the
null hypothesis of homogeneity (Chi-square
p-value = 0.448). When we classify studies
according to the corporate governance system,
we find that in Anglo-Saxon countries both
hypotheses are highly supported due to the
strong significance of the linear and quadratic
terms (p < 0.01). However, in continental
countries there is no evidence of an entrench-
ment effect since both terms are positive,
although the scarce evidence requires us to be
cautious about this result. The sample cannot
be categorised by performance measure since
most studies which examined non-linear
relations employed Tobin’s Q as performance
measure. In the case of endogeneity, only in

Volume 15 Number 5 September 2007 © 2007 The Authors

Journal compilation © Blackwell Publishing Ltd. 2007
A META-ANALYTIC VISION OF THE EFFECT OF OWNERSHIP STRUCTURE ON FIRM PERFORMANCE
Table 5: Insider ownership-firm performance relationship by insider ownership measure
Insider ownership
Insider ownership measure
Officers and directors Linear relationship
equity Linear term
Non-linear relationship
Linear term
Quadratic term
Cubic term
Board equity Linear relationship
Linear term
Non-linear relationship
Linear term
Quadratic term
Cubic term
Management equity Linear relationship
Linear term
Non-linear relationship
Linear term
Quadratic term
Cubic term
those studies that do not control for endoge-
neity the results for the overall sample can be
sustained. When endogeneity is controlled, the
linear term shows a weak effect on perfor-
mance (p < 0.1) while the quadratic term is not
significant. Therefore, since linear studies indi-
cate a positive relationship regardless of endo-
geneity controls, we should be more inclined
to think that there are continuous (at least non-
negative) returns to increased insider owner-
ship. Nevertheless, more empirical evidence is
needed.
In Table 5, we show the results for the meta-
analysis if we consider three different cate-
gories of insider ownership: officers and
directors equity, board members equity, and
management equity. The results confirm that
board members have the same alignment
incentives than managers. The convergence
of interest hypothesis suggested by agency
theory supports a positive and significant
linear relationship between firm performance
and both groups of insiders. In non-linear
regressions, the relationships between board
members equity, management equity and per-
formance, confirm a non linear association
which supports both the convergence-of-
interests hypothesis for the first range and the
entrenchment hypothesis for the last range of
ownership. In summary, regardless of whether
inside equity holders are board members or
managers, the alignment perspective supports
© 2007 The Authors
Journal compilation © Blackwell Publishing Ltd. 2007
889
Number of studies p-value Sign
6 0.047 +
6 0.226 +
6 0.022 -
8 0.013 +
4 0.000 +
4 0.080 -
2 0.004 +
3 0.000 +
3 0.017 -
the theory that both have the same objectives
when their interests are aligned with the
owners’ interests. However, one limitation of
this last analysis is the lack of previous evi-
dence needed to assess the effect of the main
moderating effects previously considered on
the different categories of insider ownership.
To summarise, in those studies which only
analyse linear regressions, insider ownership
is the only variable which shows a positive
effect on firm performance, supporting the
convergence-of-interests hypothesis. On the
other hand, ownership concentration shows a
higher effect on firm performance in continen-
tal countries, but this effect disappears when
controlling for endogeneity. In non-linear
regressions between insider ownership and
firm performance, the results of the overall
meta-analysis support both the convergence-
of-interests and the entrenchment hypotheses.
However, once we control for endogeneity
these significant effects disappear, and only
the linear term maintains a weak significance.
In non-linear relations between ownership
concentration and performance, the main
effect in the overall meta-analysis is not signifi-
cant. This variable has a weak effect in Anglo-
Saxon countries (p < 0.1), while in continental
countries it has a strong positive effect on
performance (p < 0.01), confirming the moni-
toring hypothesis. Regarding the different
definitions of insider ownership, our results
Volume 15 Number 5 September 2007
890
show that the relationship between insider
ownership and performance is independent of
the insider measure used, which suggests that,
in general, board members have the same
incentives as managers when these are share-
holders of the firm.
Concluding remarks
The empirical evidence regarding the relation-
ship between ownership structure and firm
value is mixed, providing very little in the way
of consistent results. Despite the wealth
of research, the question remains whether
insider ownership and large owners contrib-
ute to the solution of agency problems or
whether they exacerbate them. The inconclu-
sive findings of previous research limit theo-
retical and empirical research development of
this field.
Meta-analysis has allowed us to apply statis-
tical procedures to the results obtained from a
set of empirical studies in order to integrate
them, achieve a quantitative generalisation,
and deepen our understanding of these asso-
ciations and the moderating factors that
explain the different results obtained in this
long-studied field.
Our findings for the overall ownership
concentration/firm performance relation sug-
gest no significant relationship. Subgroup
moderating analyses based on performance
measure, the legal system of the country analy-
sed, and the control of endogeneity, provide
evidence of moderating influences for these
variables. The results show that in those coun-
tries characterised by agency conflicts between
blockholders and minority shareholders, own-
ership concentration has a higher effect on
firm performance than in those countries char-
acterised by conflicts between managers and
owners. This result confirms the hypothesis
which states that large shareholders are active
monitors that help increase firm profitability
(monitoring hypothesis). In other words, the
monitoring role by owners and its effect on
firm performance is mitigated in Anglo-Saxon
system countries, such as U.K. or U.S., or it is
not as important as in continental countries,
where ownership concentration is higher,
the level of investor protection is lower, and
influential blockholders have greater power
and stronger incentives to ensure shareholder
value maximisation.
An examination of the meta-analytical
results for the insider ownership/per-
formance relationship provides evidence
of both the convergence-of-interests and the
entrenchment hypotheses. However, once we
control for endogeneity these significant
Volume 15 Number 5 September 2007
CORPORATE GOVERNANCE
effects disappear, and only the linear term
maintains a weak significance. The findings
also provide evidence that the insider owner-
ship/performance relation is moderated by
the nature of the performance indicators. Inter-
estingly, the higher significance of insider
ownership in Anglo-Saxon countries confirms
the expectations of a higher alignment of insid-
ers in these countries in comparison to conti-
nental countries. The widely dispersed
ownership structure of Anglo-Saxon countries
leads insiders to align interests with outsiders
when their ownership in the firm increases.
The results of our meta-analysis do not find
differences among the various categories of
insider equity, which supports the fact that,
regardless whether inside equity holders are
board members or managers, both have the
same objectives when their interests are
aligned with the owners’ interests.
A major limitation of this study is that
although we offer evidence on the non-
linearities in the ownership structure-
performance relation, we cannot account for
the different inflection points found in these
relations, which may also vary according to
the system of corporate governance. Besides,
we have restricted the analysis to ownership
structure variables, ignoring other corporate
governance variables such as board size, the
independence of the board, or the existence of
an internal audit committee.
Additional empirical evidence would be
very useful to confirm the effect of some of
the moderators analysed in this paper.
According to our results, future research in
the ownership structure-performance rela-
tionship should check the robustness of their
findings to different specifications of perfor-
mance (accounting vs. market), or at least
future studies should treat these variables
separately. Future research should also
control for (or at least check the robustness of
their results to) endogeneity, and should
examine the possible existence of non-
linearities in the ownership-performance
relation. Those studies with national data
must consider both dimensions of ownership
structure – ownership concentration and
insider ownership- and should analyse if they
have a different effect on firm performance.
On the other hand, those studies with several
country samples should also control for the
governance system when examining the
effect of ownership on firm performance.
Specifically, future studies with international
samples could deepen in the effectiveness
and different roles that ownership concentra-
tion and insider ownership may play in dif-
ferent corporate governance systems in order
to obtain better firm performance.
© 2007 The Authors
Journal compilation © Blackwell Publishing Ltd. 2007
A META-ANALYTIC VISION OF THE EFFECT OF OWNERSHIP STRUCTURE ON FIRM PERFORMANCE
New research in the ownership-
performance relation would help us to evalu-
ate the moderating role played by other
variables which could impel the use and effec-
tiveness of governance mechanisms, such
as firm-specific-risk or industry uncertainty
factors. This would be well worth investiga-
tion in future research.
Finally, future studies could also use meta-
analysis to investigate the moderating factors
that justify the heterogeneous results in other
corporate governance research areas such as
the influence of the composition of auditing
committee (expertise and independence) on
firm performance, or even the effect of owner-
ship structure on firm discretionary accruals.
According to our results, these future meta-
analytic studies must take into account the
governance system, measurement of perfor-
mance, and endogeneity as fundamental mod-
erating factors.
Acknowledgements
The authors gratefully acknowledge the
helpful comments and suggestions received
from two anonymous referees. We also thank
the Research Agency of the Spanish Govern-
ment (Ministerio de Educación y Ciencia) for
financial support (Project SEJ2007-61450/
ECON).
Notes
1. It is precisely in those studies which consider
performance as a dependent variable and own-
ership structure as an independent variable, or a
system of equations with both as endogenous,
where the non-linearities and the true relation-
ship between both variables are more carefully
examined.
2. Those studies which examine a linear relation-
ship between ownership structure and firm per-
formance include only a linear term in the
regression of firm performance on ownership
variables; those which examine quadratic rela-
tionships have to include both a linear and a
quadratic term; and those which examine a cubic
relationship also add to the linear and quadratic
terms a cubic term.
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Volume 15 Number 5 September 2007