Market Valuation and Equity Ownership Structure: The Case of Agency Conflict Regimes

Market Valuation and Equity Ownership Structure: The Case of Agency Conflict Regimes This paper provides further evidence on the link between the firm's performance and the distribution of the common shares between insiders, blockholders and institutions. We endogenize the functional form of the market valuecommon equity structure relationship by using a switching regression methodology. This allows us to observe four distinct ownership structure types that constitute different agency conflict regimes. We provide evidence that supports the notion that investors recognize the existence of such regimes and assess market values differently depending on the type of agency regime the firm operates in. We find that firms with low insider stakes and low blockholder stakes and firms with high insider stakes and high blockholder stakes have the highest agency costs of free cash flow. We also find that the effect of the ownership variables on market values differs across regimes and that there are differences in the monitoring effectiveness of institutional holders and blockholders. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Market Valuation and Equity Ownership Structure: The Case of Agency Conflict Regimes

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1998 by 1998 Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1008381832497
Publisher site
See Article on Publisher Site

Abstract

This paper provides further evidence on the link between the firm's performance and the distribution of the common shares between insiders, blockholders and institutions. We endogenize the functional form of the market valuecommon equity structure relationship by using a switching regression methodology. This allows us to observe four distinct ownership structure types that constitute different agency conflict regimes. We provide evidence that supports the notion that investors recognize the existence of such regimes and assess market values differently depending on the type of agency regime the firm operates in. We find that firms with low insider stakes and low blockholder stakes and firms with high insider stakes and high blockholder stakes have the highest agency costs of free cash flow. We also find that the effect of the ownership variables on market values differs across regimes and that there are differences in the monitoring effectiveness of institutional holders and blockholders.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 6, 2004

References

  • Negotiated Block Trades and Corporate Control
    Barclay, M.J.; Holderness, C.F.

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