DOI 10.1111/corg.
12191
EDITORIAL
Advancing the Literature on Ownership Structure and
Corporate Governance
Corporate ownership tends to be concentrated internationally
(Claessens, Djankov, & Lang, 2000; Faccio & Lang, 2002; Zattoni
& Judge, 2012). Moreover, ownership structure – which includes,
for example, the deviation between voting and cash flow owner-
ship, multiple classes of shares, cross‐holding across firms – is
known to have a major influence on the quality of corporate gover-
nance (CG). For example, the concentration of voting power in the
hands of controlling shareholder(s) through a dual share class struc-
ture (where one class of shares retains most of the voting power)
allows diversion of firm's resources and design of investment and
financial policies to the benefit of the dominant shareholder(s) at
the expense of minority shareholders and other stakeholders
(Zattoni, 1999). Indeed, Bebchuk, Kraakman, and Triantis (2000)
identify dual share class structure as a particularly nefarious form
of corporate governance. More generally, the CG literature high-
lights the effects of ownership structure on various important
aspects of firms, such as commitment of critical stakeholders
(Zattoni, 2011), their equity valuation (Kumar & Zattoni, 2015),
and investment policy and cost of capital (Aslan & Kumar, 2012,
2014; Maury & Pajuste, 2011).
However, many important issues regarding ownership structure
and its effects on CG remain unexplored. The adverse effects of cer-
tain types of ownership structures (such as dual class equity struc-
ture) on CG and firm performance are widely studied and
presumably well known by investors, media, and policymakers. But
what factors are important in pressuring firms to remove such own-
ership structures? Cuomo, Zattoni, and Valentini (2013) underline
the influence of investor protection, but other factors (e.g., institu-
tional investors, tax policies, or public/policy pressures) can also play
a role. There is also a presumption in the literature that large share-
holders (e.g. families) tend to improve CG quality, other things being
equal. However, while the literature shows that family control
appears to have a positive impact on firm performance, a lot remains
to be explored for a full understanding of the advantages and disad-
vantages of large shareholders like families (Kumar & Zattoni, 2016;
van Essen, Strike, Carney, & Sapp, 2015). In addition, do institutional
or block shareholders always improve CG quality and performance
(e.g. Kavadis & Castaner, 2015; McNulty & Nordberg, 2016)? What
are the implications of having multiple, and sometimes dissenting,
large shareholders (e.g. Bauer, Moers, & Viehs, 2015)? The four
papers in this issue extend significantly our understanding of these
important questions.
2 © 2017 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/corg
In the first paper, Lauterbach and Pajuste explore whether
media pressure and reputational concerns put pressure on firms
to improve CG by eliminating (or diluting) the dual class share
structure. Their study is of substantial interest from a variety of
perspectives. The impact of media attention on firm behavior gen-
erates intense interest amongst academics and in the press. Simi-
larly, whether reputational concerns are effective in improving CG
performance is interesting because it is an example of the effects
of intangible and “soft” forces on important corporate decisions.
However, the empirical estimation of the role of media and reputa-
tion is challenging because archival data to measure these effects
are not easily available. Starting with a sample of European “unifica-
tions” (i.e., elimination of dual class shares to a single “one‐share‐
one‐vote” structure), Lauterbach and Pajuste do web search on
two major European business newspapers to record negative senti-
ment regarding the dual class shares in general and for each com-
pany in their sample. To address, endogeneity and reverse
causality concerns (e.g., unifications in particular industries or com-
panies may spur media interest), they also construct a global mea-
sure of media interest in corporate governance. Finally, they use
corporate social responsibility (CSR) scores as an empirical proxy
for the company's sensitivity to its public image and reputation.
The main findings of the paper are that media criticism raises the
likelihood of unification, other things held fixed; and firms more
sensitive to their public image are more likely to unify their equity
class structure, other things being equal. The results and the novel
empirical methodology to identify the effects of important but hard
to measure CG‐related forces will likely generate considerable inter-
est in the paper.
In the second paper, Armitage et al. highlight an important issue
with respect to the role of institutional investors in CG. The literature
generally views institutional investors (such as asset management
groups) as exerting a positive effect on CG performance, based on
the implicit assumption that each institutional investor acts as a single
large investor. Armitage et al. convincingly demonstrate that this view
may be questionable, or at least not generally applicable. The reason is
straightforward: Asset management groups, typically the most impor-
tant types of shareholders (such as in the UK), are composed of differ-
ent funds managed by different portfolio (or fund) managers. While,
the different fund managers investing in a company may often agree
with respect to CG‐related issues, it is plausible that they may disagree
in a significant fraction of cases. If this is the case, then the literature
Corporate Governance: An International Review 2017; 25: 2–3
EDITORIAL
has to reassess its possibly simplistic assumption that institutional
investors coordinate their voices (at least at the level of the group)
and impose discipline on insiders. A major challenge for the empirical
analysis of these issues, of course, is the proxy or information on
intra‐group coordination. Using UK data, Armitage et al. explore
trading by different funds (within an asset management group) around
takeover announcements as a proxy for intra‐group coordination or
agreement. This is a creative and plausible approach as the
coordination measure is based on the actual economic behavior or
decision making of fund managers and not on surveys (about coordina-
tion) that may present an overestimate. The paper finds that there is a
substantial degree of disagreement within institutional investment
groups in a significant minority of situations. This finding should moti-
vate the literature to reassess the assumption of cohesive influence of
institutional investors on the CG performance of the companies they
invest in, and in many instances, data should be used at the level of
individual funds.
In the third paper, Lopatta et al. utilize multinational panel data to
examine the effects of blockholder and bank ownership on CSR perfor-
mance. The determinants of CSR performance attract much attention,
but unlike most of the literature that investigates local markets, this
study is truly multinational. Furthermore, the empirical test design
addresses endogeneity issues and distinguishes between the effects
of blockholder and bank ownership. The paper makes plausible con-
ceptual arguments for blockholder (bank) ownership and CSR perfor-
mance to be substitutes (complements). The empirical analysis
supports these hypotheses: Blockholder (bank) ownership is negatively
(positively) related to CSR performance. Furthermore, Lopatta et al.
find that these effects are stronger the more dispersed the overall
ownership is. The paper advances our understanding of the interaction
of ownership structure and CSR performance along a variety of
dimensions.
Finally, in the fourth paper, Boateng and Huang examine the
effects of multiple large shareholders on excess leverage (or high bor-
rowing) policy and tunneling by controlling shareholders in emerging
economies. Excessive borrowing and then tunneling in firms with dom-
inant shareholders attracts much attention (Aslan & Kumar, 2012).
However, the existing literature has typically looked at the effects of
single large shareholders. Whether multiple large shareholders
improve CG performance further (relative to a single large shareholder)
by amplifying the contestability with controlling shareholders, or
whether there is a “free rider” effect that lowers the effectiveness of
multiple blockholders, remains an open issue. Using Chinese data,
Boateng and Huang show that the presence of multiple shareholders
significantly reduces excessive borrowing and tunneling in companies
with a controlling shareholder(s). Interestingly, the governing role of
multiple large shareholders is diluted when the government is the con-
trolling shareholder.
3
Praveen Kumar
C.T. Bauer College of Business
University of Houston
pkumar@uh.edu
Alessandro Zattoni
Department of Business and Management
LUISS University, Roma, Italy
azattoni@luiss.it
RE FE RE NC ES
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