Ownership Structure and Economic Performance in the Largest European companies

The paper examines the impact of ownership structure on company economic performance in the largest companies from 12 European nations. Ownership structure is measured by the identity and share of the largest owner. Performance is measured by return on assets, market to book values and sales growth controlling for industry, capital structure and nation effects. We find evidence of a bell-shaped (first increasing and then decreasing) effect of ownership share on assets returns and market-to-book values of equity. Companies whose largest owner is a financial institution have higher market-to book values than companies in which the largest owner is a family, another company or the government. The effects on asset returns are qualitatively identical, but weaker and insignificant except for a negative effect of government ownership. In contrast, companies whose largest owner is a family or another company have significantly higher sales growth. Nationality is found to influence the relationship between ownership structure and market-to-book values. For example the positive marginal effect of ownership ties to financial institutions is stronger in the market-based British system than in continental Europe.