Ownership Structure, Managerial Behavior and Corporate Value

There are three internal and one external governance mechanisms used for owners to govern managers to ensure they comply with their responsibility to satisfy stakeholders and shareholder’s needs. First, ownership concentration is stated as the number of large-block shareholders and the total percentage of the shares they own (Hitt, Ireland, Hoskisson, 2017, p. 317). Second, the board of directors which are elected by the shareholders. Their primary duty is to act in the owner’s best interest and to monitor and control the businesses top-level managers (Hitt, Ireland, Hoskisson, 2017, p. 319). Third, is the

Managers and shareholders are the utmost contributors of these conflicts, hence affecting the entire structural organization of a company, its managerial system and eventually to the company's societal responsibility. A corporation is well organized with stipulated division of responsibilities among the arms of the organizational structure, shareholders, directors, managers and corporate officers. However, conflicts between managers in most firms and shareholders have brought about agency problems. Shares and their trade have seen many companies rise to big investments. Shareholders keep the companies running

Share holders will be more involved in the management of these companies. As Shareholders are the real “owners” of these companies, their interests would be to insure that management operates to the benefit of the company which they can accomplish by closely monitoring management. On the contrary, shareholders may be too profit and performance orientated. This may repel talented management as underperforming companies may leave executives with unfair compensation.

Do managers ownership concentration affect firms ' investment policy? According to citet{agrawal1987managerial}, the firm 's specific risks have three effects on the insiders ' incentives. First, as a shareholder, insiders can benefit from the increased value of the equity claims if the firms invest in high risk and high return projects. Second, as risk-averse investors, insiders have lower certainty equivalent of human capital value if the firms have more volatile future cash flows. Lastly, if the managers lacks the access to freely diversify the firm specific risk of their personal wealth portfolios, they are worsen off by the variation of their total wealth. Therefore, the effect of an increase in the equity claim 's

As of today, several corporations are combined with numerous separate companies and thus consolidated financial statements need to be prepared. The traditional view of control includes both direct and indirect control. When one company owns much of another company’s common stock it is said to have a direct control. An indirect control is when a company’s common stock is owned by one or more other companies that are all under a common control. Although the most common means of acquiring control are through majority ownerships, which means more than 50% of outstanding voting stock(s) are held, a company may still be able to direct the operating and financing policies of another with less than majority ownership. Nonetheless, there are some instances when majority stockholders of a subsidiary may not be able to exercise control even though they hold more than 50% of its outstanding voting stock due to legal reorganizations, bankruptcy’s, lack of controls and

DO SHAREHOLDERS OF ACQUIRING FIRMS GAIN FROM ACQUISITIONS? Sara B. Moeller Frederik P. Schlingemann René M. Stulz Working Paper 9523 http://www.nber.org/papers/w9523 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 February 2003

According Kieso, Weygandt, and Warfield (2013), “Owners’ equity in a corporation is defined as stockholders’ equity, shareholders’ equity, or corporate capital,” and entails capital stock, additional paid-in capital and retained earnings (p. 824). This is broken down to developing an understanding between earned and paid-in capital by discussing why it is crucial to keep the two separated, the importance to an investor of either, and whether basic or diluted earnings per share is a key element.

Any model of corporate governance will have benefits and costs, but in the case of shareholder primacy the costs outweigh the benefits. To address the costs of shareholder primacy, there needs to be a shift of concentration of managers’ efforts from performance of the company on a stock market towards the attainment of real value. Increase in the stock price of a company is

To determine whether huge executive remuneration pay affects the financial performance of the company, CEO remuneration based performance, financial performance and ownership of concentration was examined.

For instance, “ninety per cent of listed companies in Germany have a shareholder with at least a 10 per cent stakes in the company” (Vitols 2001:342). The second feature that differs between the two models is the market for corporate control. In the ‘relational insider’ model, large firms tend to use market forms of financing. A significant amount of capital can be raised from public equities and market debt. Investors hold well-diversified portfolios and it is easy for them to exit an unprofitable company by selling their investment. An active market for corporate control can be achieved through hostile takeovers, mergers and acquisitions (Gospel and Pendleton 2005:7). By contrast, in the ‘relational- insider’ model “large owners have a more stable and direct relationship with management of the firm, but where smaller investors and the market for corporate control exert less discipline” (Gospel and Pendleton 2005:7). Thirdly, the primary corporate goal in the two models is different. In the ‘market-outsider’ model the primary goal is maximization shareholders’ value. In the ‘relational-insider’ model there are multiple goals including employment security, market share, and profitability (Vitols, 2001:339). Finally, Companies in the ‘relational-insider ‘model pay more attention to employees’ interests while in the ‘market- outsider ‘model shareholders’ interests are placed above all other stakeholders. For instance, in a

In order to test this hypothesis, an OLS regression model is used, where the dependent variable is performance and the independent variables include: (1) the existence of powerful CEOs, (2) leverage, (3) the relationship between these two and (4) some control variables. Table 1 summarises all variables included in the regression function and the rationale behind the selection of each one of them.

In a company's operational activities, it is essential induce financial management in its organizational structure. All business operations center on the use of finances to incur profits that benefit the company employees, shareholders and their nation's economic society. This context digs into the conduction of both managerial and corporate finance. The executive finance deals with managerial implication on financial techniques used alongside pecuniary decisions made by the company besides other financial tools and analytical procedures through corporate finance. Among the techniques used are corporate valuation, value-based management, corporate governance and EPOS (Employees Stock Ownership) plans.

In many firms separation of ownership and control is present as the shareholders who run the company often hardly ever get involved in the day to day running of the firm. However this

There has been a lot of research done dealing with the issue of ownership and firm performance since Berle and Means (1932, with critical discussions on how to align the manager’s interests to that of the shareholders. Berle and Means (1932) hypothesised that firms that are controlled by the management should be less profitable than owner controlled firms. This is known as the “incentive alignment theory” which states that the more equity a manager owns the more inclined he or she is to increase performance because it means better alignment of the monetary incentives between the manager and other equity owners according to Jensen and Meckling (1976). The “Takeover premium theory” also states that that more equity ownership by the manager should improve performance as managers that own a large portion of the stock are more capable to fight takeover bids, therefore increasing the chances that a higher takeover premium will have to be paid, Stulz (1988).

To increase and maximize the wealth/value of shareholders, it is necessary that the company is competitive in their market and can reliably “earn a considerable return on its investments above their cost of capital” (Doyle, 2000). The increasing rates of return of well performing companies attract new investors who invest money to become shareholders. These outside funds from investors are essential for growth of businesses and the expansion into new markets. Measurements of generated shareholder returns over a certain time period deliver the company useful information on whether their objectives have been achieved or should be new adjusted (Atrill, 2009).