Ownership structure and market efficiency
Masaki Nakabayashi ()
Journal of International Financial Markets, Institutions and Money, 2019, vol. 61, issue C, 189-212
We present a framework to analyze the impact of ownership structure on stockholder/manager conflicts. We first predict that, in an inefficient market, investors motivate managers to pursue a higher return on equity instead of a higher return on asset, and that this focus on short-term performance leads to leverage distortion. Using a sample of late nineteenth- to early twentieth-century Japanese firms, we show that mediocre performing firms boosted the return on equity by bond flotation, and a higher president-ownership concentration raised the return on asset and controlled bond leverage. Thus, president-ownership concentration offsets market inefficiency.
Keywords: Stockholder/manager conflicts; Multitask moral hazard; Ownership structure; Financial leverage; Self-fulfilling distortion; Skewness-adjusted variation coefficient (search for similar items in EconPapers)
JEL-codes: G32 L23 O16 K22 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:61:y:2019:i:c:p:189-212
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