Ownership Structure and Investor Protection

Inside Ownership and Firm Valuation

Bachelor Thesis , 2012 , 24 Pages , Grade: 1,3

Business economics - Business Management, Corporate Governance

It is the purpose of this paper to examine to what extent ownership structure can alleviate the agency problem and limit managerial expropriation of small shareholders. Since stock options and other forms of equity are frequently used as compensation for managers, special emphasis is placed on the question of how managerial ownership can affect agency costs and firm value. To evaluate the impact of ownership patterns on shareholder value, this paper surveys and reinterprets scientific advances in the corporate governance literature. A significant part of the analysis covers the interrelation of inside ownership, corporate policies, and shareholder value; as well as the role of endogeneity.

Inhaltsverzeichnis (Table of Contents)

• Introduction
• Agency problem and shareholder protection
• The scope of managerial discretion.
• Concentrated ownership
• Legal shareholder protection around the world.
• Inside ownership and firm valuation
• Managerial incentive alignment and entrenchment
• Empirical analyses with basic regression models
• Model expansion, intermediates, and endogeneity issues.
• Investment policy.
• Leverage policy.
• Dividend policy.
• Determinants of managerial ownership and unobserved firm heterogeneity
• Conclusion

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This paper investigates the relationship between ownership structure and investor protection, with a focus on how managerial ownership can mitigate the agency problem and impact firm value. The paper primarily examines the influence of managerial ownership on firm valuation, while acknowledging the role of legal shareholder protection as a framework that may influence ownership structure.

• The agency problem and the potential for managerial expropriation of shareholders.
• The role of concentrated ownership and legal shareholder protection in mitigating the agency problem.
• The impact of managerial ownership on firm value, particularly its influence on agency costs.
• The relationship between ownership, corporate policies, and shareholder value.
• The potential for managerial entrenchment and its effects on shareholder interests.

Zusammenfassung der Kapitel (Chapter Summaries)

The introduction sets the stage by outlining the agency problem faced by minority shareholders, highlighting the challenges of limited managerial oversight and the potential for managerial self-interest to detract from shareholder value. The chapter discusses the role of legal shareholder protection as a potential safeguard and introduces the central focus of the paper: examining how ownership structure, specifically managerial ownership, can mitigate the agency problem and impact firm value. Chapter two dives deeper into the agency problem, exploring the concept of managerial discretion and how concentrated ownership and legal shareholder protection can help reduce this discretion. It discusses the role of dispersed shareholders, the challenges of collective action, and the limitations of legal protections in preventing managerial expropriation. Chapter three, the core of the paper, analyzes the link between managerial ownership and firm valuation. It examines the implications of managerial ownership for incentive alignment and entrenchment, exploring how managerial ownership can affect agency costs and firm value. The chapter also delves into empirical analyses using basic regression models and more sophisticated models to investigate the complex relationships between managerial ownership, corporate policies, and shareholder value.

Schlüsselwörter (Keywords)

This paper focuses on the crucial themes of corporate governance, ownership structure, agency problem, shareholder protection, managerial ownership, firm valuation, agency costs, and managerial entrenchment. The work explores the interplay of these concepts, seeking to understand the impact of managerial ownership on firm value within the context of the principal-agent relationship and the broader framework of investor protection.

• College: University of Tubingen
• Grade: 1,3
• Author: Marco Klapper (Author)
• Publication Year: 2012
• Pages: 24
• Catalog Number: V196274
• ISBN (eBook): 9783656223368
• ISBN (Book): 9783656224129
• Language: English
• Tags: Managerial ownership, inside ownership, ownership structure, investor protection, firm value, incentives, entrenchment, agency problem, concentrated ownership, legal shareholder protection, managerial discretion, intermediate variables, endogeneity, firm heterogeneity, investment policy, leverage policy, dividend policy, expropriation, free-rider, empirical analysis