2.Literature Review and Hypothesis Development

In this section, existing literature based on previous studies on the presence of multiple blockholders and their impact on firm value, the role of their identity and concentration of ownership, characteristics of the first blockholders, and the aspect of insider ownership under multiple blockholders will be discussed as a foundation for the further analysis in the subsequent section.

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2.1 Concept of Single Blockholder
One critical feature that describes the presence of blockholders in a firm is the size of their ownership stake or simply how much voting power they have over a firm, which is typically measured by the percentage of shares held by them and also how dispersed or concentrated are their holdings. In a firm, an existence of a single blockholder and multiple blockholders come with different corporate governance structures. It is possible that under a case with a single, largest blockholder, smaller shareholders play little or no role in firm governance. Traditionally theories argue that concentrated ownership structure by a single blockholder is important for effective corporate governance because the only largest blockholders usually have high incentives to monitor managers (Dhillon and Rossetto, 2009). The optimal diversification theory suggests that no investor is interested in investing in a firm where the ownership is too concentrated as investors who are risk-averse would prefer putting their wealth in a firm with different shareholdings (Dhillon and Rossetto, 2009). Although many firms have multiple blockholders, however finance theory shows that having one single large blockholder is sufficient to grant potential positive values for a firm from concentrated ownership structure as they tend to choose investment policy that is different from what would be chosen by dispersed blockholders’ desired policy. Additionally, a large blockholder is less subjected to the free-rider problem among shareholders as they direct discipline over managers (Dhillon and Rossetto, 2009). However, such a highly concentrated ownership within a single large blockholder can also adversely affect firm value. For example, a ‘moral hazard’ problem can arise, as initial owners only have incentives to monitor the firm and increase firm value if they have high equity stakes within the firm. Moreover, a single blockholder can put a limit on the investment opportunity of a firm, as no or less outside investors are willing to hold more shares than the largest blockholder (Laeven and Levine, 2008). Further, a single large blockholder faces a trade-off between selling shares at low prices to attract more investors and holding high control of the firm, (Dhillon and Rossetto, 2009). Finally, Faccio et al. (2001) and Gugler ; Yurtoglu (2003) who use the dividend payout ratio as an indicator for agency conflicts Type II to examine the effect of ownership concentration by the first largest family-owners on the dividend payout ratio. They find that the ?voting rights of the single largest blockholder are negatively associated with the dividend payout ratio (Faccio et al.,2001 and Gugler ; Yurtoglu 2003).

2.2 Concept of Multiple Blockholders
Another segment of corporate structure is when multiple blockholders exist in a firm, which is a reflective of a dispersed corporate ownership. Multiple blockholders typically act in accordance to influence the firm value in their interests. However, in some cases, blockholders might not get along together or have different interests and so trying to block each other’s jobs. In this paper, we pay close attention to the situation where a firm is comprised of several controlling blockholders, typically referred to the first three largest blockholders in the firm. Apart from ‘voice’ and ‘exit’ mechanisms that blockholders can exert, multiple blockholders emergence introduces governance mechanism, ‘trading’ (Edmans and Gustavo, 2011). Because multiple blockholders cannot coordinate to limit their discretion to maximize their trading profits, they instead trade competitively, thus incorporating more private information into prices and moving stock prices towards their fundamental market value (Edmans and Gustavo, 2011& Konijn et al., 2011). In principle, a second or third largest blockholders are good for firm value if they help to monitor the first largest blockholders effectively, which requires them to have sufficient power to provide monitoring to the first blockholder (La Porta et al., 1999).
However, coordination problems such as free-rider problems can arise with the presence of multiple blockholders. For example, in firms with multiple blockholders, the third largest blockholders provide less or no monitoring activities but instead wait to benefit from actions taken by the first and the second largest blockholders as they individually have insufficient incentives to bear the costs of monitoring activities (Admati et al., 1994 ; Edmans and Gustova, 2011). Besides, if multiple blockholders pursue the same interests and goals, they can over-monitor the firm, thereby discouraging some managers from undertaking profitable projects and thus lowering firm value.
Firms with multiple blockholders are likely to involve in high- risk, high-return projects, such as R&D and skill-intensive investments, signalling higher firm value (Carlin and Mayer, 2000; 2003). The positive relationship between the level of dividend payout ratio and the presence of multiple blockholders suggests an evidence of the additional blockholder placing a mitigation effect upon the largest blockholder expropriation (Urban, 2015). Attig et al. (2008) also find that firms with multiple blockholders placing monitoring over the largest blockholder have lower cost of equity capital. Bharath et al., (2010) also perceive better firm liquidity with multiple blockholders. Volphin (2002) finds that firm’s market value is higher with multiple blockholders than firms with a single blockholder for Italian listed firms. In Europe and Asia, dividends are positively related to the number of blockholders in a firm (Faccio, Lang, and Young, 2001). Similarly, according to Gutierrez and Tribo (2004), the number of blockholders is positively associated with the performance of private firms. Lastly, Attig et al. (2009) similarly find positive impact of multiple blockholders existence on Tobin’s Q in East Asian countries. This is also affirmed by Maury and Pajuste (2005) who find a positive relationship between contestability of power and firm value, suggesting that more equally distributed voting rights among powerful blockholders (higher dispersion) is effective in improving firm performance.

From the above-mentioned literature, it is more evident that the more highly dispersed the ownership structure is, the higher the firm value. As a result, this brings us to formulate the first testable hypothesis of:

Hypothesis 1: The presence of dispersed multiple blockholders is better for firm value respective to a single largest blockholder with concentrated ownership.

In this paper, we use a scaled ?Herfindahl index ?as a proxy for blockholder dispersion to test the variation in impact between the presence of a single large blockholder with highly concentrated ownership and multiple blockholders with more dispersion on firm value. The measure does not only capture the presence of multiple blockholders, but also the contestability of their control.

The following sections will focus on the theoretical backgrounds of the identity and characteristics of blockholders, insider ownership structure and their impact on firm value, which are the main issues this paper will address.
2.3 Multiple Blockholders Identity
Apart from how the presence of multiple blockholders can enhance firm value, one focal point in this paper is multiple blockholders identity, where different blockholder identities could have different impact on firm value in blocks composition. Blocks are arranged according to their voting power. In this study, we focus on the first three largest blockholders who are controlling shareholders owning at least 10% of votes in a company. The motivation behind looking at the three largest blocks is from prior studies, particularly in the Western Europe, where it is reported that in the general meetings, no more than two to three largest blockholders in a firm exercise their voting power (Karhu et al., 1998). Therefore, we aim to explore how different common types of blockholders can affect extraction of private benefits to the disadvantage of minority shareholders or the incentives to monitor other blockholders, or in other words, exploring how large blockholders can either collude or monitor. Hence, despite the presence of multiple blockholders with high dispersion of ownership enhancing firm value discussed previously, we intend to investigate how the type of individual blockholder influences their effect on firm value differently, by incorporating their identity into analysis.
2.4 Family-owners Blockholders
According to Faccio and Lang (2002), 44.3% of the Western European firms are controlled by family owners. Also Maury and Pajuste (2006) find that firms with family owners generally perform better with higher profitability compared to firms controlled by non-family owners. Cheng (2013) describes that the presence of family owners being the first largest blockholder reduces agency problems Type I for a few reasons. For instance, family owners have concentrated rather than diversified ownership and so they have more incentives to monitor managers in their firms to reduce the prevalent free-rider problems (Cheng, 2013). Also, because they bear idiosyncratic risks with the firm, they are more bothered with the generation of cash flows of their firms (Cheng, 2013). Moreover, family owners long-term presence in the firms suggests that they are more likely to invest in long-term projects, which therefore solves the problem of managers myopia (Stein, 1988). In the Western European countries, there is an evidence showing that that family ownership is associated with higher firm value primarily in economies with stronger shareholder rights protection (Maury and Pajuste, 2002). Although family ownership has been found to have a positive impact on firm value, but many literature agreeably state that if multiple blockholders are family owners, they can decide to collude. According to Urban (2015), provided that the first largest blockholder is a family owner, it is likely that families also constitute the most common second largest blockholders. Thus, family owners are prone to form coalition with the second largest blockholders who are also family owners, diverting profits away from minority shareholders and sharing them among themselves. This therefore suggests that firm value will decrease if the outsiders’ ability to monitor the insider family owners is low. Maury and Pajuste (2005) find that when multiple blockholders emerges, large family owners, who particularly have managerial or board representation in a firm, are more susceptible to extract private benefits when lack monitoring by another strong blockholder. This shifts the focus from traditional owner-manager agency problems between managers and shareholders (agency costs Type I) as described in Jensen and Meckling (1976) to agency problems between controlling and minority shareholders (agency costs Type II) (Berle and Means, 1932). The contestability of power of multiple blockholders in a firm explains this mechanism. We refer to contestability as the degree to which outside blockholders (financial institutions) monitor inside blockholders (family owners) or basically the probability that the profit diversion can be recovered by institutional investors who provide counterbalance effect, with this probability usually higher when their voting power is higher (Maury and Pajuste, 2005). For instance, if the institutional investors own more than 10% of the shares, they can request for an audit, which will therefore increase the likelihood of diverted profits to be returned to the firm. The concept of “cost-of-diversion” , introduced by Maury and Pajuste (2005) which refers to the share of profits that is wasted when optimal private benefits extracted is diverted among blockholders is used to illustrate how firm valuation is affected by formation of coalitions among blockholders. This cost is borne by the controlling coalition partners, which in this case, family owner and is dependent on the total fraction of votes held by the colluding partners and their identity (Maury and Pajuste, 2005). We assume that the cost of diversion is lower when voting power of the controlling coalition partners increases with the presence of board majority (La Porta et al., 2002), thus facilitating concordant decision making (Maury and Pajuste, 2005). According to Maury and Pajuste (2005), if the coalition is formed with large blockholders holding more than 50% of voting power and low fraction of cash-flow rights, this gives them higher discretion in expropriating, which mitigates the positive-incentive effect from cash-flow ownership and thus lowering firm value. Collusions and expropriations exist in the form of excess salaries, beneficial transfer pricing to other privately held firms by the large blockholders, or subsidized personal loans (Maury and Pajuste, 2005). By controlling majority equity stakes in a firm, the largest blockholders can divert parts of the profits away from the firm before they distribute the remaining profits to the shareholders as dividends (Maury and Pajuste, 2005).
2.5 Non-family owners Blockholders
On the other side of the coin, non-family owners who are financial institutions, corporations, government and individual investors will acquire ownership stakes in a firm if the size of their voting rights is large enough to influence some sort of control over management. In this paper, we focus on testing two different identities, between family owners and non-family owners who are ‘financial institutions’, regulated by authorities. However, because their ability to influence the firm value is limited by the presence of additional larger blockholders as families, financial institutions regard investments in firms whose largest family blockholders hold smaller or relatively equal equity stakes on average (Urban, 2015), meaning they are more likely to invest in firms with other institutional investors holding large stakes because it is easier for them to cooperate and act in the interests of shareholders and firm as a whole (Urban, 2015). As a result, this suggests that they are less likely to constitute the second (or third) largest blockholders in firms where the first largest blockholder is a family, which therefore supports the theory of coalition among blockholders of the same type as mentioned earlier. According to Mallin (2006), the largest equity holdings were over 40%, when the second largest holdings were around 17 percent, with 10 percent holdings of the third largest blockholder, and lastly smaller shareholders owning about 14% in aggregate. The huge gap between the largest and the second largest block holdings suggests that, in the case that the second blockholder is non-family owners, their role in controlling the firm or intervening the largest blockholder is limited (Mallin, 2006). In contrast, if the first blockholder does not control the majority of the firm’s shares, or that they have relatively equal amount of votes to that of the second blockholder, then this ownership structure suggests that the second and smaller shareholders with particularly different identities can intervene in the decision-makings, provide monitoring and counterweight effect (Gomes and Novaes,2001).
Regarding the contestability of power, there can be a case where marginal costs of diversion is higher with the presence of multiple blockholders,for example, in a structure of ownership where cash-flow rights are higher than control rights, where extraction of private benefits are less likely. This implication is consistent with the theory of incentive effect of the cash-flow rights that dominate the entrenchment effect of the control rights, and thus have opposite effects on expropriation (Claessens et al., 2002). The marginal cost of private benefit extraction will also be higher under the monitoring of the third largest blockholders who are financial institutions. This is because the financial institutions bear higher opportunity costs of getting seized for diverting profits and punished by the regulatory authorities. Hence, it is more difficult for institutional investors to extract private benefits as they are subjected to laws.
Anderson and Reeb (2004) document that family owners contribute most positively to firm value when their power is balanced by the presence of outside, independent blockholders. Efficient monitoring hypothesis by Berle and Means (1932) suggests that institutional investors like mutual funds, pension funds, insurance companies, can play positive role in ensuring better firm value by mitigating agency problems Type II between controlling and minority shareholders, thereby reducing cost of equity capital (Fama and Jensen, 1983). In addition, financial institutions are more likely to undertake in relational investing and are more committed to the company, thus means more beneficial for the company in the long run (Blair, 1995). Therefore, the presence of institutional investors as the second or third outside blockholders would benefit the society at large as their interests are more likely to align with those of the society (Blair, 1995). Lastly, Maury and Pajuste (2005) find that a higher voting power held by another large non-family owners is positively associated to firm value, which suggest that the type of blockholders have a great influence on the incentives of multiple blockholders to collude with each other or to monitor one another. From the literature and theories discussed, this gives us a second proposed hypothesis of:
Hypothesis 2: If the controlling coalition is formed by two (or more) large blockholders who have the same identities, contestability of power of multiple blockholders is lower, which causes the presence of multiple blockholders to have a negative impact on firm value.
Apart from the two different identities of blockholders we aim to distinguish, we additionally construct different conditions under which the presence of another large blockholder can pose a detrimental effect on smaller shareholders, which is harmful to firm value; and also under which another blockholder can pose a counterbalance effect on expropriations by the largest blockholders, which is helpful in protecting the benefits of the minority shareholders, all of which constitute our next proposed sub-hypotheses.
We develop two contexts under which the conditional identity of the second blockholders following the first largest blockholders has any impact on the voting power and consequent action of the first blockholder and later on firm value. Our two conditions are strict to the fact that the first largest blockholders are family owners according to Isakov and Weisskopf (2009) who say that family ownership is the most common form of ownership ,and also to Houssam Bouzgarrou and Navatte (2013) who say that family ownership is one of the most developed forms of concentrated ownership. We therefore develop two conditions to indicate the formation of identity among multiple blockholders. The first condition is when both the first and the second blockholders are family owners, while the second condition is when the first blockholder is family owners but the second blockholer is financial institutions. These conditions allow us to test the impact of conditional identity of the multiple blockholders on firm value. As a result, these assumptions refer us to the following two sub-hypotheses under the main second proposition stated previously above.
H2.1: The presence of multiple blockholders has negative impact on firm value if the both the first and second blockholders are family-owners due to negative, entrenchment effect from coalition and expropriation.
H2.2: The presence of multiple blockholders has positive impact on firm value if the first blockholder is family-owners and the second blockholder is financial institutions due to positive, monitoring effect.
To summarize, the presence of multiple blockholders proposes the trade-off between colluding and monitoring. On one hand, more than one controlling shareholder can lead to an increasing firm value as he reduces the largest shareholder contestability of power. On the other hand, the following shareholder can also lead to a decreasing firm value as more partners can jointly extract private benefits, making it more efficient and less costly, thus strengthening their bargaining of power. Taking into account, the true effect on company value depends on the relative size of blocks holding and the identity of blockholders.
2.6 Characteristics of First Blockholders under Presence of Multiple Blockholders
On top of blockholder identity, we also aim to investigate the characteristics of the first , family blockholders as either they are founder-CEOs or descendant-CEOs. According to the existing literature of Cheng (2013), family owners have unique features compared to other non-family owners like, concentrated ownership, longer investment horizon as they wish to pass on their asset ownership to future generation, and active involvement in day-to-day management of their firms, holding positions as either boards or executives in the firm. However, not all family owners are of the same characteristics. Family owners who are CEOs/Chairman can be further classified into either (1) founder-CEOs or (2) descendant-CEOs or (3) hired professional-CEOs. The first category, founder-CEOs, typically have great leadership and management skills and powerful status in their firms (Cheng, 2013). Descendant-CEOs, in contrast, tend to have lower skill sets and are often criticized of being spoiled by the prior CEOs of the founding family and are usually more slacking. In this paper, we focus on the first and the second category under the aspect of multiple blockholders. This classification of family owners is critical in understanding the argument we aim to address in the next hypothesis. Family firms typically have founders or descendants of the founding family serving as blockholders. Family firms account for 44% of large Western Europe firms and over 70% of firms in East Asian countries (Faccio and Lang, 2002; Claessens et al., 2000).
Founder-CEOs who have long tenure and considerable involvement in the startup and management of the firms have more knowledge about their firms, which allows them to provide better monitoring activities to the firms, implying an enhanced firm value. When the owners of the firms are also the CEOs, there is lower misalignment of interests in a firm as the founder-CEOs are more concerned about securing higher value of the firm than other blockholders (James, 1999). They are also more troubled with the firm’s reputation as it has a long-term effect on their firm valuation and family business horizon. Many studies show that founders who originated the firms create better value than descendants, who sometimes can destroy firm value after they takeover the positions as CEOs after their successors, unabling to produce firm performance that is distinguishable from firms dominated by non-family owners (Villalonga and Amit, 2010). Also, Davis et al. (1997) state that CEOs-founders protect the family wealth as it is tied to their well-being, and so tend to be more committed. Similarly, Anderson and Reeb (2003) observe that founder-CEOs in family firms perform better compared to descendant-CEOs. According to Morck et al., (1988), founder-CEOs are more likely to bring in value-enhancing activities and more expertise to improve firm performance. Moreover, Villalonga and Amit (2006) document that firm value is enhanced only when the founders serve as the CEO or Chairman with a hired CEO. Fahlenbrach (2009) also finds that 11% of the largest U.S. public firms are geared by founder-CEOs, with these firms have higher investments in R;D and higher capital expenditures.
However, under the two categories of family owners, there can arise conflicts within families. According to Cheng (2013), ‘family feuds’ can exist between founders and descendants. Pe´rez-Gonza´lez (2006) finds that descendant-CEOs usually underperform in operating profitability. Moreover, Bertrand et al. (2008) also confirm that when the founders’ descendants are more involved in the company’s management, firm performance is lower, especially after the founders’ death. This is attributed to a few reasons, for instance, the descendants lack of managerial skills and particular knowledge in operating the firms after their successful founders. The additional know-how of a founder-CEO is not transmitted to the descendants (Villalonga and Amit, 2006). Also, in family firms, the descendants are chosen to be the CEOs of the firms not because they are qualified to, but rather because they are part of the founding families (Chen, 2013). In contrast, for non-family firms, all better qualified managers have the potential to become the CEOs.

Nevertheless, the existing literature has been investigating this relationship under the presence of a single largest blockholder as a family owner only; hence, we aim to investigate the same relationship incorporating the presence of multiple blockholders. With the theory of collusion effect among family blockholders, it is likely that when there are multiple blockholders (who are family owners of the firm), the chance of colluding among themselves to gain control and extract private benefits for themselves is higher than the case when there is only one largest blockholder. Isakov and Weisskopf (2014) mention that CEOs-founders can have a strong influence on firm performance, as they can equally help controlling outside managers and therefore mitigate agency costs type I, or, they can even extract more private benefits which increases agency costs type II. Under the situation when there is a single family blockholder in a firm, the CEOs who is also the founder of the firm may have long presence in the firm and have certain skills in managing the firm. Because the he is also the single largest blockholder in the firm, he has the highest voting power in making corporate decisions, with a primary goal of profit maximization and no threats from other following blockholders challenging his actions. However, when there are multiple blockholders, which can be family owners or non-family owners, the voting power of the first blockholder who is also a CEO-founder is challenged and threatened by the second (third) blockholders. Hence, with the fear of losing his power, it is likely for the CEO-founder to commit colluding actions with intimate, inside (outside) blockholders to secure his private benefits, thus causing firm value to be lower overall. This is supported by a transaction hypothesis, which suggests a negative influence of CEOs-founder on firm value,where founders are more concerned with the associated private income streams more than maximizing the firm value (Ullah and Zhang, 2016). Further, it is possible that some CEOs-founder values his control more than profitability of the firm when there are multiple blockholders with a diverse voting power, and thus tend to engage in risky investments to ensure his power is not confronted. Consequently, we aim to address the role of multiple blockholders presence on influencing the actions of CEOs-founders (1SH) in a different aspect than the single blockholder presence.

Isakov and Weisskopf (2014) suggest that descendants usually have different motivation than the founders and are more vulnerable to expropriate. However, according Lim (2017), relative to a single-family blockholder firm, multi-family blockholders firms have higher chance to force out founders and are less likely to allow descendants to take control of the firm after the retirement of original founders. From this literature, we expect that under the presence of multiple blockholders, when the heirs of the firms become CEOs, they are faced with more pressure from many large blockholders, which then might secure an overall good management. Hence, despite the existing findings about the negative influence of CEOs-descendants on firm value, the predicted sign on CEO_HEIR is obscure.
Thereby, using two dummy variables, CEO_FOUNDER and CEO_HEIR, we expect the relation of both CEOs-founders and CEOs-heirs to have a negative impact on firm value. This brings us to the third testable hypothesis as follows:
Hypothesis 3: Under the presence of multiple blockholdings, both founder-CEOs and descendant-CEOs can bring negative impact on firm value.
2.7 Insider ownership under the Presence of Multiple Blockholders
Another classification of blockholders that is crucial to mention is insider and outsider ownership, where there are differences regarding to inside and outside blockholders’ impact on firm value. Corporate outside blockholders or external corporate ownership is commonly typified by the UK and the U.S corporate governance systems (Barker, 2006). They are generally financial institutions or are commonly names as institutional investors like mutual funds, banks or external affiliated entities who perform governance roles externally, are not involved in the internal management team and normally have low voting rights (Barker, 2006). Such external blockholders have more concentrated goals that lie beyond firm value creation. The European corporate governance system is also shifting away from an insider ownership system towards an outsider system (Barker, 2006). In contrast, according to Jensen and Meckling (1976), corporate inside blockholders are owners or shareholders of the firm who usually hold large equity stakes with the majority voting rights to oversee and control the firm from within due to better knowledge in the operating activities and private information about a company. They actively involve themselves in daily management internally and has a core aim of maximizing shareholder value (Barker, 2006). According to La Porta et al. (1999), the ownership structure that is most prevalent in the listed firms around the world is “family owners”, who are said to have close relationships with banks and also are common feature of insider ownership systems. However, apart from family owners, these insiders also include firm officers or non-officer company’s directors (Konijn et al., 2011), who are non-families. Nevertheless, due to their high voting power and board representation, insider blockholders are more susceptible to influence the company (Barker, 2006).
Isakov and Weisskopf (2009) finds that firms where family owners are the first largest blockholders and also insiders usually have better firm performance than firms with non-family owners. However, he also argues that if family owners are investors (having outsider perspective) and are not actively involved in day-to-day management, the firm does not typically perform better. Only if the family blockholders are actively involved in management, either as CEO or Chairman, or both, do they then add value to the firm than outside blockholders, from better information and knowledge about the firm (Isakov and Weisskopf, 2009). This suggests that when the firm is controlled by outsider blockholders or institutional investors, the firm does not significantly perform better relative to when it is controlled by insiders or family owners who solely participate themselves in a firm in a financial position.

Many prior research studies have been done to assess whether insider ownership poses a negative or positive impact on shareholder value. Concerning this, the insider ownership level has been measured by combining the percentage of shares held by the single largest blockholder with no evidence of any studies examining the insider ownership under the presence of multiple blockholders. Hence, the goal of this paper is to fill in this gap, testing the impact of insider ownership on firm value under the presence of multiple blockholders, regardless of their identities. Different results lie on two aspects of effects of insider ownership on firm performance. One research paper states a higher insider ownership posing a positive effect on firm value by the positive convergence of interest effect (or incentive-alignment effect), which argues that insider multiple blockholders can bring in more monitoring activities, thereby better aligning interests between blockholders and minority shareholders and thus reducing agency problems. Stulz (1988) also supports the same argument where higher level of insider ownership increases the bidding premium for takeovers, which therefore reduces the probability of successful hostile takeovers, securing higher firm value. Morck, Shleifer and Vishny (1988) suggest an “N” shaped relationship between insider holdings and firm performance, showing that insider ownership between 0 and 5 percent is associated with higher firm performance, between 5 and 24 percent is associated with lower firm performance, and lastly above 25 percent is associated with better firm performance, where firm value increases but much more slowly. This is because incentive effect from monitoring dominates entrenchment effect of private benefits extraction. However, these findings are captured under the aspect of a single blockholder only. To our best knowledge, we find no evidence of literature that studies the relation between insider ownership and firm performance under the aspect of multiple blockholders and so this suggests that the extended investigation is relevant for our paper (Kaserer and Moldenhauer, 2008).
Nevertheless, higher insider ownership can also destroy firm value by a negative entrenchment effect of insider ownership, where inside blockholders who own higher ownership stakes have incentives to secure their position within the firm so as to protect their private benefits and resist outside supervision, thereby expropriating firm value and causing lower Tobin’s Q (Chou, 2015).Faccio et al. (2001) who study the sample from Western European and East Asian countries also find an evidence of the expropriation of shareholder benefits by inside blockholders. In the U.S. study taken by Gugler et al., (2008), firm’s value initially increases with insider ownership but later falls when a fraction exceeds 60%. Moreover, referring to an influential paper by McConnell and Servaes (1990) who document a positive relationship between higher insider ownership and firm value up to a certain threshold of 50% ownership, after which it gradually starts to negatively affect firm value. Similarly, Gugler and Yurtoglu (2003) document an inverted u-shaped relationship between insider shareholdings and firm value, where they discuss that as the insider voting rights increase further up until a certain threshold, inside blockholders are more susceptible to deviate their interests from those of smaller shareholders, thereby causing the firm’s payout to decrease.
In the presence of multiple blockholders with the second and third blockholders following the first, we expect that the average insider ownership of a firm increases, suggesting that insider ownership structure of a firm increases, which thereby could lead to a decreasing firm value from the negative entrenchment effect. One empirical evidence on the impact of higher insider ownership regarding the single largest blockholder on firm value is suggested by Boerkamp (2016), who studies Dutch listed firms, finds that as family ownership is above around 20% shareholdings, firm performance decreases, which implies that as insider ownership of the single largest blockholder who are family owners rises above 20%, firm value decreases. This means that the stated family ownership follows a quadratic relationship with firm performance, which was due to the proposed argument that families owners have sufficiently high voting power to expropriate firm assets and/or forego riskier investments to secure their private benefits of control, thereby having an adverse effect on firm performance (Fama and Jensen, 1983 ; Hamadi and Heinen, 2015).
Additional evidence is from Isakov and Weisskopf (2009), who argue that in the absence of the second blockholders who provide counterbalance effect on the first blockholder or in the presence of the second blockholders owning a significantly small fraction of shares ;5% in the company, the firm with the single largest family blockholders do not relatively perform better than the firm with non-family blockholders (Isakov and Weisskopf ,2009). However, when the second blockholders who are also family blockholders emerge and own ;30% of voting rights in the company, firm value starts to decline (Isakov and Weisskopf ,2009). They also document that the second blockholders as inside-family owners owning 5-10% ownership is optimal for firm value, because this suggested level allows for a good internal firm control of the second blockholder together with the first blockholders (Isakov and Weisskopf ,2009). Nevertheless, some studies observe no significant relationship between insider ownership and firm value (Demsetz and Lehn, 1985).
In relevant to the theory of blockholders expropriating and the dominating entrenchment effects, we aim to provide an evidence that insider ownership under the presence of multiple blockholders causes a deteriorating firm value more than insider ownership under the presence of a single blockholder. According to the existing literature, insider ownership after 50-60% causes firm value to be lower in the presence of a single large blockholder. This is based on the idea that too much of an internally concentrated ownership introduces incentives for the controlling, largest insider to expropriate wealth from minority shareholders (Fama and Jensen, 1983; Morck et al., 1988; Shleifer and Vishny, 1997). Later in the analysis, we aspire to suggest that when multiple blockholders exist, insider ownership at a lower stakes causes firm value to decline. An entrenchment influence on the part of insiders, which indicates that too high a percentage of insider ownership of multiple blockholders has a more serious negative effect on firm performance. This explains the highly possible chance of inside blockholders who could jointly expropriate firm profits or taking control over the firm as an insurance of their own benefits. This means that when there are multiple blockholders, it is easier and quicker for insiders to expropriate profits by colluding with one another. Thus, it becomes harmful for firm value with insider voting stakes lower than 50% (compared to the case of a single blockholder), or, that insider ownership at lower percentages cause firm value to decrease when multiple insiders participate in the same, seizing action. To illustrate, if the firm has only one blockholder, it causes that blockholder to achieve 50% or higher insider voting power to divert profits away; however, if there is a second blockholder, there is a potential that the two blockholders agree to steal part of the wealth away from smaller shareholders for their own welfare. Hence, it will cause the second blockholder to achieve only 25% of insider voting power, as together with first blockholder, they agreeably conduct expropriation. To add further, Maury and Pajuste (2005) also note that if the largest multiple blockholders are also insiders, the marginal cost of stealing profits can be reduced, which could increase private benefits extraction and thus substantially lowering firm value. Therefore, it is crucial for us to investigate the impact of insider ownership with the insight of multiple blockholders presence on firm value.

Consequently, with our focus on multiple blockholders and using similar mechanisms implemented by prior studies, we pay close attention in examining whether or not firm value declines after 25% of insider ownership under multiple blockholders presence. The cut-off values is derived from Cronqvist and Nilsson (2003), who range the estimated agency costs of controlling shareholders of between 6%-25% of firm values. Cronqvist and Nilsson (2003) consider a firm to be controlled by a family if it is the largest owner, owning ;25% of the votes, which is often enough to control and exert the main influence on the firm’s decisions, implying that the entrenchment power of a controlling insider blockholder is an increasing function of the votes, or that, the negative effects of insider ownership is an increasing function of the insider votes.
Taken together with the prior theoretical arguments made about insider ownership impact on firm value, this allows us to develop the fourth testable hypothesis of:
Hypothesis 4: When the second blockholder owns inside voting power above 25%, the presence of multiple blockholders causes firm value to be lower.
Figure 1: Relationship between Insider Ownership and Tobin’s Q for 220 Swedish firms from 1998 to 2016.

The graph in Figure 1 suggests that between 0 – 20% insider ownership under the presence of MBH or multiple blockholders (the first three largest blockholders), Tobin’s Q increases, indicating a positive relationship between higher insider ownership of MBH and firm value. However, as the level of insider ownership reaches about 25%, Tobin’s Q gradually decreases, which implies that as insider ownership of MBH rises above the cutoff point of 25%, firm value is lower. As insider ownership increases further above 40% to 50%, Tobin’s Q decreases more extensively, after which it then gets lower than those with 0% insider ownership. In short, this graph explains a nonlinear, inverted u-shaped relationship between insider ownership of MBH and firm value, which is consistent with our third hypothesis previously stated. Nonetheless, the definite turning point where the curve starts to slope downward is yet to be empirically tested.

4.1Testing Model Framework
Our empirical model leads to the following regression equations following each hypothesis:
Regression Equation 1 – Hypothesis 1
Qit = ?1Ln(HF_dispersion1)it + ?2ROAit + ?3LEVit + ?4CAPEXit + ?5Ln(TA)it + ?6SALESGit + ?it

Q = Tobin’s Q or firm value
i = denote a cross-sectional observation
t = denote time (year)
? = error term
In our first hypothesis, we expect the relation between the herfindahl index
Ln(HF_dispersion1), capturing the presence of multiple blocks, and Tobin’s Q to be negative. This suggests that higher dispersion of ownership is better for firm value, or that when ownership is more equally distributed among many large shareholders, there are lower differences in voting stakes among them, which is translated to a higher contestability of power and higher firm value.
Regression Equation 2 – Hypothesis 2
Qit = ?1Ln(HF_dispersion1)it + ?2ROAit + ?3LEVit + ?4CAPEXit + ?5Ln(TA)it + ?6SALESGit + ?it
*conditional on if COLLUSION = 1
Our main second hypothesis (H2) suggests that firm value decreases with lower contestability of power of multiple blockholders when collusion is formed among the multiple blockholders of the same type, for instance, family owners, where the probability of expropriation is higher. We use the herfindahl variable Ln(HF_dispersion1) which represents the presence of Multiple Blockholders as our predictor, with the construction of a conditional indicator variable as indicated by the hypothesis, COLLUSION, takes a value to 1 if at least two blockholders hold the same identity (i.e. both are family owners) and hence are more likely to form coalition, and 0 otherwise. Hence, we will report the results in two columns, one if the conditional statement is true and another if it is false. We expect a negative impact of the presence of multiple blockholders on firm value under the condition when COLLUSION = 1 , or when collusion exists.

In addition to the conditional dummy variable COLLUSION, the Shapley value, as suggested by Milnor and Shapley (1978), is used to measure the strategic interaction among blockholders of different types, particularly between the dominant blockholder and all other additional blockholders. According to Zingales (1994). The Shapley value is estimated by the value of votes in percentages held by the controlling blockholders divided by their fraction of votes. To estimate the Shapley value of the main blockholders in a situation where there are multiple blockholders, it is considered that the blockholders as individual players in a firm and the remaining other shareholders as an “ocean” (López?Iturriaga and Santana?Martín, 2015). Specifically, we use the Shapley value of the largest three blockholders to measure their contestability of power in influencing firm value, where the blockholders combined holdings of shares more than 50% of the votes in a firm gives the Shapley value of 1, reflecting the voting power of the multiple blockholders as a winning coalition (López?Iturriaga and Santana?Martín, 2015); and 0 otherwise. If the largest three blockholders do not own majority of control in a firm (less than 50% voting power combined), this suggests that the contestability of power is higher with lower Shapley value (López?Iturriaga and Santana?Martín, 2015). In other words, the lower the Shapley value, the lower is the probability of the controlling blockholders in pivotal to coalition, which is due to the higher power of other additional blockholders (financial institutional blockholders) who contest the power of the first family blockholder. This therefore would lead to a higher firm value. Hence, we transform the shapley value into a dummy variable to capture collusion effect. The dummy Shapley value (SHAPLEYDV), which equals to the probability that a group of multiple blockholders will collude and extract private benefits at the costs of minority shareholders(Maury and Pajuste, 2005) will take a value of 1. Therefore, regarding our main second hypothesis, we would expect a negative relation between the presence of multiple blockholders and firm value when the Shapley dummy is equals to 1 (Rossi et al., 2018). Because the same variable captures the probability to collude like the aforementioned conditional variable COLLUSION, it will be later used in the robustness check.
Regression Equation 2.1 – Hypothesis 2.1 – Both 1SH and 2SH are family owners
Qit = ?1Ln(HF_dispersion1)it + ?2ROAit + ?3LEVit + ?4CAPEXit + ?5Ln(TA)it + ?6SALESGit + ?it
*conditional on if 1FAM_2FAM = 1
Regression Equation 2.2 – Hypothesis 2.2 – When 1SH and 2SH have different identities
Qit = ?1Ln(HF_dispersion1)it + ?2ROAit + ?3LEVit + ?4CAPEXit + ?5Ln(TA)it + ?6SALESGit + ?it
*conditional on if 1FAM_2FIN = 1
Next, incorporating the unique identities of multiple blockholders to test our sub-second hypotheses (H2.1 and H2.2), we use our two conditional indicator variables 1FAM_2FAM (which equals to 1 when the first two largest blockholders are both family owners, each holding at least 10%) and 1FAM_2FIN (which equals to 1 when the second largest blockholder holds a different identity from the first blockholders who are family owners) to test the influence of blockholder identity on firm performance. This first conditional variable (1FAM_2FAM) captures the situation when the two largest blockholders forming coalition to extract private benefits at the expense of other shareholders, where we expect a negative relation between the presence of multiple blockholders (herfindahl variable) and firm value. The second conditional variable (1FAM_2FIN) instead captures the counterbalance effect the financial blockholder (2SH) provides on the first-family blockholder (1SH), who is the controlling shareholder. This monitoring effect contests the power of the first blockholder in expropriating profits and thereby securing a better firm value for minority shareholders. Consequently, we expect the relation between the presence of multiple blockholders (herfindahl variable) and firm value to be positive under the second condition. Two columns of results will be reported for each sub-hypothesis, as the samples are split into two sub-samples (0 and 1).
Regression Equation 3 – Hypothesis 3 – Characteristics of 1SH
Qit = ?1CEO_FOUNDERit + ?2CEO_HEIRit + ?3ROAit + ?4LEVit + ?5CAPEXit + ?6Ln(TA)it + 78SALESGit + ?it
*conditional on the MBH_Presence = 1
To test hypothesis 3 (H3), we use two characteristic dummy variables CEO_FOUNDER and
CEO_HEIR as predictors of the regression to test and see the difference in impact of CEOs who are original founders and descendants on company value under the existence of multiple blockholders (MBH_Presence = 1). We construct a conditional dummy variable MBH_Presence from the second blockholder votes higher than 5% (VOTE_2SH >5%), which equals to 1 if there is an existence of multiple blockholders. In contrast to the literature about characteristics of CEOs in a single-owner family firm, we differently expect a negative impact from CEOs-founders on company value, under the presence of multiple blockholders.
Regression Equation 4 – Hypothesis 4 – Insider ownership
Qit = ?1Ln(HF_dispersion1)it + ?2ROAit + ?3LEVit + ?4CAPEXit + ?5Ln(TA)it + ?6SALESGit + ?it
*conditional on if Insider ownership of 2SH >25% = 1

For the last hypothesis (H4), we use the herfindahl variable Ln(HF_dispersion1) to capture the presence of multiple blockholders as our main predictor of the last regression and test its impact on firm value based on the following insider ownership condition: if the second blockholder owns above 25% of insider ownership in a firm, firm value starts to decline. Thus, to test this hypothesis, we use the aforementioned conditional indicator variable 2SH_INSIDER_>25%, which takes a value of 1 if the proposed statement is true and 0 if false. We expect a negative sign on the coefficient of the herfindahl variable (capturing MBH presence) when 2SH_INSIDER_>25% = 1 and two columns of results are reported based on the two sub-samples.

Concerning the methodology in this study, we use Pooled Ordinary Least Squares (OLS) model because we want to maintain the time-invariant ownership variables (e.g. Identity of blockholders). Nevertheless, we also include the year and firm-ID dummies to absorb all time-specific and firm-specific fixed effects and because we do not want aggregate trends to influence our cross-firm regressions (not reported). Although some reported coefficients are not statistically significant, but the direction of bias should be clearer. In addition, to resolve the issues of heteroskedasticity and autocorrelation among the firms, we use Newey-west robust standard errors (clustering standard errors). Moreover, the Pooled OLS specification yield broadly the same results as random effects model (not reported), controlling for possible unobserved firm and year specific effects. The same model specification (Pooled OLS) is used by Maury and Pajuste (2005), testing the impact of identity of multiple blockholders on firm performance. To control for possible multicollinearity problems, for each regression, we run a collinearity diagnosis using “listcoef” command in Stata, where the mean Variance Inflation Factors (VIF, used to detect for multicollinearity) values range between 1.24-1.66 (below 2). This indicates that the collinear relationship between our variables look fine and are not worrisome as the rule of thumb suggested (a VIF value higher than 10 infers multicollinearity). Each regression comprising of the variable capturing the presence of multiple blockholders are estimated separately to avoid multicollinearity.

During our analysis, there are a few problems we face throughout. One problem is Multicollinearity, where our insider ownership variable “INSIDER_3SH_25-100”, which represents the third largest blockholder who holds insider ownership more than 25 percent, is omitted. The potential reason behind this problem could be due to the insufficiency of data upon which the variable is constructed. Since the variable is constructed from two predictors, ‘Insider dummy variable’ and ‘Votes of the third blockholder’ and by looking at the data, there are no third blockholders who hold more than 25 percent of inside ownership in a firm (no 3SH holding more than 25% of the votes). From the frequency table we tested of the third blockholder votes, the most concentrated insider ownership of 3SH lies between 2%-6%, with only 0.6% of the third blockholders having insider ownership between 20%-23.90%, which is less than 25%. Because there is not enough independent variation in our ownership data to separately identify marginal effects, including more firms to get more variation in the number of votes the blockholders have could mitigate the problem in future studies. Another concern we have is Endogeneity Bias in the ownership variables. The problem, where the ownership variables are treated endogenous, is also common in the previous studies. In this study, we investigate a causal relationship between ownership structure of Swedish listed firms and Tobin’s Q or firm value; however, with the presence of endogeneity, the relationship can also go vice versa as a result of potential reverse causality. Consequently, our regression analysis can produce biased and inconsistent parameter estimates of which hypotheses tests can be misleading. Therefore, we mitigate this problem by constructing instrumental variables and perform the “two stage-least squares” regression (2SLS). According to Maury and Pajuste (2005), Demsetz and Villalonga (2001) ; Hermalin and Weisbach (1991), we treated the ownership structure endogenously and use the lagged ownership variables as instruments for the 2SLS regression. The lagged variables, which are genuinely exogenous and are strongly correlated with our endogenous regressors only influence the dependent variable, Tobin’s Q, through the endogenous ownership independent regressors. The last, small concern is the possibility of Omitted variable bias, which we include controlled variables to address the issue.


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