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Ownership structure and market efficiency

Masaki Nakabayashi ()

Journal of International Financial Markets, Institutions and Money, 2019, vol. 61, issue C, 189-212

Abstract: 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)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:61:y:2019:i:c:p:189-212

DOI: 10.1016/j.intfin.2019.03.003

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Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

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