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Atlantic Review of Economics 

            Revista Atlántica de Economía

Colegio de Economistas da Coruña
 INICIO > EAWP: Vols. 1 - 9 > EAWP: Volumen 2 [2003]Estadísticas/Statistics | Descargas/Downloads: 8064  | IMPRIMIR / PRINT
Volumen 2 Número 06: Does Ownership Structure Affect Value? New Evidence From The Spanish Capital Market.

Antonio Mínguez-Vera
Politechnic University of Cartagena

Juan Francisco Martín-Ugedo*
University of Murcia

Reference: Received 24th March 2003; Published 08th May 2003.
ISSN 1579-1475

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This paper analyzes the influence of ownership structure on firm value. We find a negative relationship between the ownership of shareholders with large blocks, on the one hand, and the degree of control, on the other, with regard to firm value, the second relationship being significant. However, endogenous treatment of these variables then reveals a positive effect for the ownership of the major shareholders on firm value, although the opposite relationship is not significant; and no effect of the degree of control on Tobin´s and vice versa. A positive effect is seen when the major shareholders are individuals.


Este trabajo analiza la influencia de la estructura accionarial, como mecanismo de control interno, en el valor de la empresa. Los resultados muestran una relación negativa del grado de control, por un lado, y de la propiedad accionarial de los accionistas con altos niveles de participación, por otro, con respecto de dicho valor. Sin embargo, el tratamiento endógeno de estas variables revela una relación positiva entre la participación en el capital de los accionistas principales y el valor de la empresa, no dándose significación alguna en la relación contraria; mientras que el grado de control parece no tener efectos significativos en la Q de Tobin y viceversa. Finalmente, en cuanto a las características del accionista principal, se observa un efecto positivo cuando éste es una persona física.


   Starting in the 1930s with the work of Berle and Means (1932) and Coase (1937), economists have been interested in the effects of separation between ownership and control of corporate enterprises. The different objectives of the investors who provide the financing and the firm managers and directors who run the company generate issues known as agency problems. Corporate governance research examines the mechanisms investors have developed to control companies so as to minimize these problems.

  The mechanisms investors can use to align insider (managers and directors) interests with their own are usually divided into two types: external and internal. External mechanisms include the market for corporate control or product and factor markets. Examples of internal mechanisms are management compensation systems, insider ownership and ownership concentration. External strategies are particularly important in Anglo-Saxon culture and legal systems that experience dispersed ownership structures. Internal mechanisms are prevalent in other kinds of markets, including Spain.

   We analyze a context that is radically different from circumstances in the U.S., where investors are little involved in running publicly owned companies and are concerned mainly with the profitability and risk of their portfolios. This is not the norm in most European countries, including Spain, where ownership structures are highly concentrated and, presumably, major shareholders have considerable incentive to oversee managers. Another difference between the U.S. and Europe is a low percentage of institutional investor shareholdings in continental European economies. It is true that financial institutions are prominent among institutional investors in the European countries.

   This study has one main objective: to present new evidence on the corporate ownership structure as a mechanism of corporate governance in Spain. We carry out several sorts of analysis. First, we present new evidence on the influence on firm value of the major shareholders, measured by alternative variables, with special attention to the possible non-linearity of this relationship. To do so, we use the methodology proposed by Morck, Shleifer, and Vishny (1988). That has not, to our knowledge, been applied to the Spanish market. Second, we analyze the impacts of the degree of control, as measured by the Cubbin-Leech (1983) index, in Tobin´s . There is no evidence of such an analysis in the Spanish market. Third, we examine the influence of the type of major investor on the value of the firm.

   Finally, we evaluate possible endogeneity between the value of the firm and ownership concentration and the degree of control. This represents a contribution to the literature, as we are not aware of any other study of the endogeneity of major shareholder ownership and the degree of control in the Spanish market.1

   Our results offer evidence of a negative relationship between firm value and the ownership of shareholders holding large blocks. The degree of control has a significant negative influence on firm value. On the other hand, the presence of an individual or family investor as the major shareholder has a favorable influence on the value of the firm.

   In the study of the endogeneity of influences, a two-stage least squares methodology indicates, first, that ownership concentrated among shareholders with significant holdings has positive influence on the value of the firm. The direction of the influence does not seem to be from the value of the firm towards the shareholder concentration. This result is contrary to non-significant negative relationship obtained by ordinary least squares. Second, there is evidence of a non-significant reciprocal relationship between the degree of control and Tobin´s . This evidence also differs from the estimate produced by ordinary least squares, showing a significant negative influence on the value of the firm.

   The rest of the paper is structured in four sections. We first describe selection of the data and the characteristics of the sample. The influence of ownership concentration, the degree of control, and the characteristics of the major shareholders for firm value are examined in section three. Section four assesses the endogeneity of ownership concentration of investors holding significant blocks of the equity capital, on the one hand, and of the degree of control, on the other, in terms of Tobin´s . Finally, conclusions are presented in section five.


  The sample studied includes all non-financial companies that were listed on the Spanish continuous market on 31 December 1999. This adds up to a total of 118 firms.
   Information about ownership structure comes from the Registro de Participaciones Significativas (Registry of Significant Equity Shareholdings) of the CNMV (Comisión Nacional del Mercado de Valores), which lists direct and indirect holdings of shareholders holding 5%, or multiples of 5%, of firms´ share capital2. Accounting data come from the SABE database3. The number of shares and listing prices come from the Madrid Stock Exchange annual listing. Descriptive statistics for the variables defined below are presented in Table 1.

   We use as measure of profitability Tobin´s . The measures of profitability adopted as dependent variable in other research vary considerably, but can generally be divided into two groups: those that use mainly accounting measures, and those that use Tobin´s . The main difference is that accounting results are based on events that have already occurred, and thus offer a view of the past, while the focuses on future expectations. More recent research tends to use Tobin´s 4.

   We use an approximation of Tobin´s (Q), defined as the sum of the market value of stock and the book value of the debt divided by the book value of the total assets. We find an average value of 1.97. This approximation of Tobin´s is common in numerous studies on ownership structure. Demsetz and Villalonga (2001) find for this approximation an average value of 1.1 in the U.S. In the United Kingdom, Hillier and McColgan (2001) find an average value of 1.96.5 

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   The concentration of shareholdings is calculated in several ways. First is the percentage of capital owned by the major shareholder and the two to five largest shareholders of the firm (OWNi, where i = 1, …, 5). The mean values of the concentration of the main shareholder (0,31) and of the five most important shareholders (0.46) are relatively close to the Leech and Manjón (1999) descriptors (1999), with means 0.39 and 0.59, respectively, in a study of 308 firms listed on the Spanish market during 1989-1995.

   Another indication uses the Herfindahl index (H) calculated as the sum of the square of the shareholder ownership of equity capital, , where is the percentage of shares held by shareholder i6.
The third measure of concentration is a logarithmic transformation, LOWNi, defined as:

This transformation, used by Demsetz and Villalonga (2001), among others, aims at obtaining symmetrical distributions of the measures of ownership.
   We define the sum of the stockholding interests of all the shareholders that have a share of 5% or more of capitalization, SUM, and a log transformation, LSUM. Finally, quadratic and cubic transformations of SUM are also included, as are the shares of the major shareholder and the next four major owners, so as to capture non-linear relationships with the value of the firm.

  To provide robustness, and following the methodology used be Morck et al. (1988), a number of alternative variables are included to capture the non-linear relationship between firm value and the percentage of shares owned by the major shareholders. First, X1, X2, and X3 are measured according to break points of 10% and 25% of share capital of the investors with a significant share. Second, Y1 and Y2 are calculated to indicate majority control, which implies a break point of 50%. Finally, Z1 and Z2 are defined at a break point of 70%, following results obtained by Gedajlovic and Shapiro (1998) for a concentrated market, such as Germany.
  The Cubbin-Leech (1983) index, ALFA, is used as a measurement of the degree of firm control. It indicates the probability of the main shareholder controlling the firm depending on degree of ownership and dispersion of the ownership of the other shareholders. This index predicates a major ownership block that votes strategically, while the rest of the shareholders either vote against or in favor of the main shareholder or vote in random coalitions; each option has a probability of 0.5.
   Thus, for a firm with N shareholders, with percentages of possession, , where , the vote obtained by a main shareholder or coalition, S, formed by n shareholders, would be P(n). The vote of the remaining shareholders i (qi), where i = n + 1 ……..N, will take a value qi = Pi or qi = 0 with the same probability. Therefore, the vote of shareholder i will be a random variable with mean
The votes obtained by the primary coalition, taking this into account, will be given by the expression , which is a random variable with mean,

The probability of the major coalition obtaining majority would be determined by the expression:

where P(n) represents the votes of the major shareholder or coalition and the squared sum of the votes of the remaining shareholders.

   If we substitute the expression of the Herfindahl index, H, in , we would obtain . Finally, substituting , in , we obtain that the degree of control is defined as

  Applying the central limit theorem, this index should behave as a standard normal distribution, taking values between 0.5 and 1. Thus, the closer the value is to 1, the higher the probability that the major shareholder or group of shareholders will control the company.
   The degree of control we find (ALFA of 0.93) is higher than that found by Mudambi and Nicosia (1998) for financial firms in the British market, 0.66. However, it is very close to the 0.9 find by Köke (2000) in Germany, a civil law country.
  Two binary variables, INS and IND, take values of one when the main shareholder is an institution (INS) or an individual (IND), and zero otherwise.7
   The size of the company control variable is approximated by its capitalization. As this variable is a component of Tobin´s , its inclusion could cause a false positive sign when the value of the firm is included as a dependent variable. To mitigate this problem, we measure size as the logarithm of the firm´s capitalization, LCAP.8
Other control variables include: the firm´s systematic risk, BETA; specific risk, SRISK; leverage, defined as book value of debt over book value of assets, LEV; book value of the assets, ASSET; and a dummy variable, REG, that takes the value one when the firm is a regulated industry and zero otherwise.


  We have noted that there are substantial differences between ownership structures in countries following Anglo-Saxon law, such as the United States and the United Kingdom, and in those countries following civil law. The figures in Table 2 illustrate this.
   First column of the table shows the sum of the shares of investors who own 10% or more of the firm capitalization for samples consisting of the 20 largest firms by capitalization in France, Germany, Japan, United Kingdom, and United States. United Kingdom and United States companies display much more dispersion of ownership than France, Germany, and Spain, where ownership is clearly more concentrated. This evidence suggest that in Spain, like in the rest of civil law countries, studies have to consider not only the separation between investors and insiders, but also possible wealth expropriation from minor to major shareholders.

   The second and third columns show the percentages of ownership represented by one family or by institutional investors. The values indicate a high level of participation both of families and institutional investors in Anglo-Saxon countries, which causes us to conclude that in nations under civil law the control of other corporations (non-financial firms) dominates. Although it is not delineated in Table 2, financial institutions in the United Kingdom and the United States have low levels of shareholdings relative to civil law countries.

  Given that institutional investors have a leading role in takeovers (probably, the most effective reducing agency problems external mechanism), their low level of ownership in civil law countries is remarkable. Therefore, the evidence in table 2 points different control mechanism tendencies across countries. Thus, ownership concentration would be the main mechanism in civil law countries, whereas takeover would dominate in Anglo Saxon countries.
   We examine first the influence of shareholder concentration and degree of control on the value of the firm. Second, we analyze the possible non-linearity of the concentration of ownership. Finally, we analyze the influence of characteristics of the major shareholder on firm value.

3.1.- Influence of ownership concentration and degree of control on firm value.

   Concentration of ownership allows shareholders to look after their interests directly. Ownership concentration may have different effects on the value of the firm. On the one hand, ownership concentration would be expected to be positive, as with increasing investor ownership, investors would be more interested in controlling management decisions. On the other hand, it could be negative, as a high degree of concentration might indicate poorly developed capital markets so that taking control, as a mechanism of discipline, would be ineffective. Moreover, high ownership of some shareholders could be used to take advantage of minor shareholders´ interests, through such as establishment of commercial or financial relationships that are advantageous for their other interests elsewhere but are contrary to the interests of the first firm. Finally, Demsetz (1983) argues that there should be no relationship between shareholders concentration and firm value, as ownership structure is endogenously determined.

  The empirical evidence is not conclusive regarding the influence of this variable on firm value. Galve and Salas (1993), for example, find a positive relationship in the Spanish market. Mudambi and Nicosia (1998) find a negative relationship in the U.K., while Demsetz and Lehn (1985) do not find any relationship in the U.S. market. Other researchers such as Leech and Leahy (1991) find conflicting results depending on the dependent variable used.10
  Following theory and the current empirical evidence, we propose five different models to capture the relationship between shareholder ownership and the value of the firm. The first one includes the stockholding of the main shareholder, as follows:

where the term OTHER refers to the control variables described in section two.

   The second model, following Demsetz and Villalonga (2001), is based on a logarithmic influence of shareholder ownership on Tobin´s , determined by the expression:

  The third model includes, as an alternative measure of concentration, the Herfindahl index:

  The fourth model uses the sum of the holdings of shareholders owning 5% or more of the firm´s capital as the independent variable:

  The last model uses a log transformation of this same ownership variable, using the methodology in Demsetz and Villalonga (2001):

   Ordinary least squares (OLS) regressions results for the models are presented in Table 3.11 In all cases there are non-significant negative relationships with Tobin´s . Results for ownership by up to the five largest shareholders are consistent in all cases with that result and are thus not shown.


   We conclude that ownership concentration does not reduce agency conflicts in firm governance. This result is consistent with evidence found by several authors in different countries and markets, including Holl (1975) in the United Kingdom; Round (1976) in Australia; Demsetz and Lehn (1985), Murali and Welch (1989), and Zeckhauser and Pound (1990) in the United States; Manjón (2000) in Spain; Özer and Yamak (2001); in Turkey and Wu and Cui (2002) in China.

   So far, researchers have generally assumed that ownership concentration is representative of the corporate degree of control. Thus, ownership concentration of major shareholders has been taken as indicative of company performance, without paying attention to distribution of the rest of the shares. That is, shareholder concentration has been taken into account, but not the control exercised.

  Some researchers have started to use different measures of control, such as the Cubbin-Leech index, to examine ownership and control in a separate manner. Thus, Leech and Leahy (1991) in the U.S. market and Mudambi and Nicosia (1998) in the British market observe that, although the relationship between firm value and ownership concentration is negative, the relationship between firm value and control is positive.
  To compare the influence of the degree of control and Tobin´s , we use the expression:

   The OLS regression results for this model (model 6) are presented in the last column of Table 3. The degree of control, ALFA, has a negative sign, significant at a 10% level, contrary to expectation and contrary to the findings of Leech and Leahy (1991) and Mudambi and Nicosia (1998).

3.2.- Non-linear influence of shareholder concentration on the value of the firm.

   The contradictory results in studies of the influence of ownership concentration on firm value could be an indication of the presence of non-linearity in the relationship. That is, a significant ownership may allow shareholders to exercise effective control over management, if the cost of exercising this control is less than its benefits. If ownership of investors is high enough, this may encourage major stockholders to appropriate the wealth of minor shareholders.

   The results of research on this question are not unanimous either. Prowse (1992) does not find a non-linear relationship between ownership concentration and firm value in a market with a highly concentrated ownership structure as in Japan. Gedajlovic and Shapiro (1998), however, show a non-monotonic relationship between the variables for the U.S. and German firms, but do not see evidence of this relationship in the United Kingdom, France, and Canada.

   To test for a possible non-linear relationship in the Spanish market, we use a series of alternative models. The first model includes the square of the sum of the ownership of shareholders with large blocks, SUM2, thus examining for the presence of a quadratic relationship of blocks ownership and the value of the firm. So, the expression is:

   Next, we include the cube of SUM, SUM3, to examine the possibility of cubic relationship between ownership and firm value. We use the equation:

   Finally, three models use the methodology developed by Morck et al. (1988) to capture results for different break points of the relationship between ownership and value of the firm. In the first of these, the division points are at 10% and 25% of the concentration of significant shareholders. So, the expression is:12

where X1 is a variable that takes the value of the ownership of shareholders if it is less than 0.10, and 0.10 otherwise. Similarly, X2 takes the value zero if ownership is less than 0.10; the amount of the ownership percentage minus 0.10 if it is less than 0.25 but greater than or equal to 0.10; and 0.25 if the ownership value is greater than or equal to 0.25. Finally, X3 takes the amount of the ownership minus 0.35 if it is greater than or equal to 0.25, and zero otherwise.

  In the second model, the break point is set at 50% of the ownership of the significant shareholders, expressed by the equation:

where Y1 takes the value of the ownership of shareholders if it is less than 0.5, and 0.5 otherwise, while the variable Y2 takes the value of zero if the ownership is less than 0.5, and the amount of the ownership minus 0.5 otherwise.
  The final Morck et al. (1988) model establishes 70% possession as the break point:

where the variable Z1 takes the value of the ownership of shareholders if it is less than 0.7, and the value of 0.7 otherwise, and the variable Z2 takes the value of zero if significant shareholder is less than 0.7 and the amount of the ownership minus 0.7 otherwise.13

   Estimation results for non-linear equations are shown in Table 4. Model 1 reveals a negative relationship between firm value and the square of the ownership percentage of shareholders with large blocks, SUM2. This indicates that at high levels of ownership an expropriation of the wealth of minor shareholders by major shareholders occurs.


   When we add the variable SUM cubed, SUM3, to the regression to capture a cubic relationship, not only do we not encounter evidence of this relationship but the quadratic variable also loses significance (model 2). This could indicate a problem of multicollinearity among the independent variables, given the high degree of correlation among them.

   Models 3, 4 and 5 use the Morck et al. (1988) methodology. In model 3 we find a positive relationship for degrees of ownership ranging from 10% to 25%, but negative and insignificant relationships for degrees of ownership between zero and 10% and between 25% and 100%. Model 4 shows a positive relationship for minority control, levels of ownership under 50%, and negative relationships at levels over this percentage. Finally, model 5 shows a non-significant relationship in levels of ownership of less than 70% and negative relationships for higher percentages.

   These results would be consistent with the possibility of expropriation of minor shareholders wealth when the shareholders with blocks hold high levels of shares. However, the absence of correlation of the shareholder concentration values relative to Tobin´s is a signal that one should be cautious in this conclusion.

3.3.- Type of main shareholder and value of the firm.  

  Another question in the effectiveness of ownership structure as a control mechanism is characteristics of the major shareholder. There is an ample literature on the supervisory role of both institutional and individual or family investors. In the case of institutional investors, Diamond (1984) predicts that they can exert greater control due to economies of scale in corporate supervision.

   Along the same lines, Pound (1988) states that institutional investors may have more experience when it comes to exercising control, and can do so at less cost. He also raises the possibility that managers or directors may either form an alliance with the institutional investors or exert some sort of implicit influence over them (depending on possible business the institutional investors may have with the firm), so that insider interests take priority over maximization of the firm value. At the same time, institutions, whose investments are diversified, may have fewer incentives to exercise control.
   The empirical evidence is not conclusive in the case of the supervisory role of institutions. McConnell and Servaes (1990), Chaganti and Damanpour (1991), and Ackert and Athanassakos (2001) find that the control exercised by institutions has a positive effect. Wiblin and Woo (1999) show that public institution investment concentration has negative effects for the profitability of the firm. Cronqvist and Nilsson (2000) find no significant relationship between institutional ownership and the value of the firm.

   An individual or a family group, as a major investor, have more incentive to exercise control of a corporation, as they would have less ability to diversify their investments. Such investors could lack the advantages of institutional investors, such as economies of scale. In this case too, the empirical evidence is ambiguous. Cronqvist and Nilsson (2000) find that the presence of family ownership in a firm has negative effects on its value. Renneboog (2000) counters that large shareholding interests in the hands of individual and family investors are linked to a greater probability a board may be restructured and, thus, this could be indicative of more effective control.

   We use three models to analyze the influence of the major shareholder on the value of the firm. In the first model, the independent variable is a dummy that takes the value one when the main investor is a financial institution, INS, as in the expression:

   The second model includes IND variable, indicating an individual as the major investor. The expression is:


   The third model includes the institutional and individual investor variables in one regression:

  The results for the three models are shown in Table 5. Note in model 1 that the variable INS is negative and significant, consistent with evidence in Wiblin and Woo (1999), which could indicate that institutional investors are less effective in reducing agency conflicts. This result should be interpreted with caution, however, as it has no significant relationship with Tobin´s in the correlation matrix (see the appendix).

  The second variable, IND, has a significant and positive sign in model 2, which may indicate more effective control when the major shareholder is an individual.
   Finally, model 3 shows the interrelationship between the institutional and individual investor variables. Note that only the variable that indicates the presence of an individual investor as the major shareholder has a significant relationship with the value of the firm.


  The results observed to the shareholding concentration and, especially, the degree of control on firm value surprised us and leads to consider possibly endogenous effects. These points are examined in this section.
  As we noted earlier, may be that ownership structure is determined endogenously. This is why Demsetz (1983) argues that there should be no association at all between ownership structure and firm value.
  To justify no relationship, one would have to see ownership structure as the endogenous result of a series of decisions that reflect the influence of the shareholders and their negotiating activity in share markets. Hence, when there is a public offering or an investor decides to divest a shareholding interest, ownership interests become, in most cases, more diluted. Or, the buying of significant volumes of shares or takeover bids may cause an increase in ownership concentration.
  This is to say that the ownership structure of a firm reflects decisions taken by both the firm´s current shareholders and potential shareholders. The ownership structure that pertains at each time, whether concentrated or diluted, will be influenced by investor desire to maximize the value of the firm, thus there should not be any systematic relationship between changes in ownership structure and firm value.
  After Demsetz and Lehn (1985) found evidence of the endogeneity of the ownership structure, some research has looked the direction of the relationship between the value of the firm and concentration of shareholdings, particularly the association between firm value and the participation of the insider investors. It is logical to assume that expectations as to the profitability of the firm may influence shareholdings. That is, firms that have more optimistic prospects would have higher level of manager and directors shareholdings. In addition, as Bryan, Nash, and Patel (2002) show, firms with higher growth reward their insiders with disproportionately more shares. All this leads us to believe that there could be a two-way relationship between both variables: that manager-director participation could affect firm value, and vice versa.
   Empirical evidence on the question is varied. Loderer and Martin (1997) find that firm value is negatively related to insider holdings, but that this variable does not affect the value of the firm. Cho (1998) reaches the same conclusion regarding the relationship between concentration of shareholdings of board members and Tobin´s , but this positively affects firm value.
  Demsetz and Villalonga (2001) find a negative relationship between the value of the firm and insider shareholdings, on the one hand, and the percentage of capital held by the five main shareholders, on the other. The effect in the opposite direction is not significant. López and Rodríguez (2001) and Mínguez and Martín (2003) find a two-way relationship between firm value and insider shareholdings in the Spanish market.
   We apply two models to analyze the direction of the effect of these two variables. In the first model, the dependent variable is firm value, measured by Tobin´s , while the independent variable is a logarithmic transformation of the proportion of shares the five major shareholders own, as in Demsetz and Villalonga (2001). The equation is:

  In the second model, the variable representing shareholder ownership is a function of firm value and of other control variables, as follows: 14

   The results are presented in Tables 6 and 7. The OLS estimates in Table 6 indicate that Tobin´s seems to exert no effect on the dependent variable. Only for total assets of the firm is there a significant relationship with LOWN5 and with the expected negative sign.15 Neither systematic risk, BETA, nor specific risk, SRISK, seem to indicate a relationship with the ownership of the five major shareholders. This result is consistent with the evidence in Demsetz and Villalonga (2001).


   Table 7 supplies evidence for two-stage least squares regression (2SLS) that treats firm value and (the logarithmic transformation of) the five major shareholdings (LOWN5) as endogenous variables. When Tobin´s is taken as the dependent variable, a positive relationship is observed (significant at 10%) between it and the ownership of the five major shareholders. Therefore, the capital concentration represented in these five shareholders seems to imply greater surveillance of manager performance. This evidence is contrary to the results of the OLS estimate, where the relationship is not significant. Both types of estimates, however, agree on the non-significance of the relationship when the dependent variable is the ownership of the five major shareholders. 


   Hence, we can conclude that a greater concentration of shareholdings is related to a higher value of the firm, while there is no relationship at all in the opposite direction; that is, higher value does not have an influence on any greater concentration of ownership.16 This evidence is contrary to the findings of Demsetz and Villalonga (2001) that the value of the firm has a negative influence on the concentration of the five major shareholders, while it does not affect Tobin´s . The results in the Spanish market can be a consequence of the incentive to oversee the managers, given that market for corporate control is not as important as in the United States.
  Among the control variables, ASSET has the same negative sign as in the OLS results. That is, total assets indicate a negative effect for concentration of shareholding (LOWN5). This evidence is logical given that larger assets usually imply larger investments to get the same fraction of equity.
   As in the case of concentration of shareholdings, it is logical to think that the degree of control and the firm value may be endogenously determined. That is, the probability of exerting control over a firm may have an influence on its value, and Tobin´s may also be determinant of that probability. We use two-stage least squares analysis to examine the direction of the relationship between the Cubbin-Leech index and the value of the firm. To our knowledge no work has yet analyzed endogeneity between the Cubbin-Leech index and Tobin´s .
   We follow the same procedure we use for the study of endogeneity between concentration of shareholdings and firm value. In the first model, the dependent variable is Tobin´s , and the independent variable the degree of control, ALFA. The equation is:

  In the second model, the Cubbin-Leech index is a function of the value of the firm and of the same control variables as in the study of endogeneity of the concentration of shareholdings: systematic risk, BETA; specific risk, SRISK; and level of assets of the firm, ASSET. The equation is:

   The results are shown in Tables 8 and 9. In the OLS estimation in Table 8, the degree of control is the dependent variable. The results show significant and negative influence of the value of the firm on the degree of control (models 1, 2, 3, and 4). One might conclude that firms with lower probability of creating value present a greater possibility of control by the major shareholder. 


  Other variables show, first, a non-significant, negative relationship with the size of the firm in terms of book value, and, second, positive signs for specific and systematic risks, although only the latter is significant. Thus, it seems that firms with greater market risk have a higher probability of control.
   Table 9 presents the results of the Cubbin-Leech index and the value of the firm as simultaneously determined endogenous variables, using the 2SLS methodology. As can be seen, the degree of shareholder control does not have a significant influence on the value of the firm; this evidence is contrary to the conclusions obtained using OLS. Nor does the value of the firm seem to be a significant determinant of the Cubbin-Leech index, contrary to the evidence in Table 8. 



   We have evaluated the effectiveness of the ownership structure as an internal corporate control mechanism in the Spanish capital market. Spanish corporate structure is based on French civil law and characterized by a high concentration of shareholdings, relatively few institutional investors among shareholders, and little operation of external control mechanisms. The effectiveness of ownership structure as an instrument for reducing agency conflicts between owners and insiders thus may vary from that observed in countries subject to common law, such as the United States and the United Kingdom. Our study reveals new evidence in the Spanish capital market of the influence of ownership concentration of shareholders with large blocks, of the degree of control, and of the effects of the characteristics of major shareholder on the value of the firm.

   The results indicate a non-significant relationship between the major shareholder as an institution and firm value. This relationship is positive in the case of an individual as a major shareholder. We thus conclude that individuals as shareholders exert a positive effect in reducing conflicts between principals (shareholders) and agents (managers or directors).
   We find a negative relationship (but not-significant) between the concentration of shareholdings and the value of the firm, using several measures of the shareholdings of the major shareholders. This result indicates that concentration does not have any influence on the value of the firm. Second, examination of a non-linear relationship between the various ownership variables and the value of the firm shows that the concentration of shareholdings of investors with large blocks has a negative effect on Tobin´s for high levels of holdings. This could signal an expropriation of the wealth of minor shareholders by major shareholders.
   The Cubbin-Leech degree of control index yields a significant negative value. Thus, the greater probability that a major shareholder will exert control seems to be negatively related to the value of the firm. Despite previous evidence of a negative relationship between concentration and value, there is to our knowledge no other work showing a negative relationship between the value of the firm and the degree of shareholder control.

   These surprising results, especially that relative to the degree of control, lead us to consider the possible endogeneity of the concentration of shareholdings, on the one hand, and the degree of control, on the other, regarding the value of the firm. Two-stage least squares regression indicates a positive effect of the concentration of shareholdings on Tobin´s , and no evidence of the opposite relationship. Therefore, higher ownership percentages of major shareholders seem to encourage them to exercise more control of the performance of the managers. This result is consistent with the perspective of Berle and Means (1932), in that dispersion of ownership must be inversely related to the value of the firm. Our ordinary least squares regression results are different; the relationship is negative and not significant.
   Finally, endogenous treatment of the degree of control and Tobin´s shows a non-significant influence of the Cubbin-Leech index on the value of the firm. Nor does the value of the firm seem to be a determinant of the Cubbin-Leech index. This leads us to believe that the probability the major shareholders may exercise control does not have an effect on Tobin´s , contrary to the negative relationship obtained by ordinary least squares.


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Notas a pié de página

* Corresponding author. Dpto. de Organización de Empresas y Finanzas, Facultad de Economía y Empresa, Campus de Espinardo, Universidad de Murcia, 30100 Espinardo (Murcia), SPAIN, Tf: +34 968363837, E-mail:

1 The influence of boards of directors on firm value is the subject of extensive research in the Spanish market, so we do not examine this point. Some recent Spanish evidence can be found in Fernández, Gómez, and Fernández (1998), López and Rodríguez (2001), De Andrés, Azofra, and López (2002), Miguel, Pindado, and Torre (2002), and Mínguez and Martín (2003).

2 The CNMV is equivalent to the U.S. Securities and Exchange Commission.

3 Sistema de Análisis de Balances Españoles, compiled by Bureau Van Dijk.

4 For further detail on these measurements, see Demsetz and Villalonga (2001).

 5 The maximum value obtained for this variable is a high 23, although this is similar to values found by Wiblin and Woo (1999) in Australia or López and Rodríguez (2001) and De Andrés, Azofra y López (2002), in Spain.

 6 Our database includes only those shareholders who hold at least 5% of firm capital. Thus, to compute Herfindal index, we have included two or one fictitious investors with a possession of 0.1%, in firms with no shareholders or only one shareholder with share equal to or higher than 5%, respectively.

7 Institutions includes financial and credit institutions, insurance companies and so on.

8 López and Rodríguez (2001) measure size as the total assets of the firm, which is the denominator of Tobin´s Q, solving this possible econometric problem through a logarithmic transformation of the variable. Other authors, such as Yermark (1996), include as an approximation of the size of the firm the numerator of Tobin´s Q, likewise applying the logarithmic transformation. Finally, Cronqvist and Nilsson (2000), Ersoy-Bozcuk and Lasfer (2000) and De Andrés, López y Rodríguez (2002), among others, measure the size of the firm by the logarithm of its stock exchange capitalization.

9 Regulated firms are chemical, electrical, oil, and communication companies.

10 The sale of stocks by major shareholders and/or founders usually has negative price effects. Telepizza and Inditex are typical examples in the Spanish market. This negative reaction is usually attributed to information asymmetry and not to its effect on ownership concentration. Anyway, this aspect is out of our analysis.

11 First we examine a correlation matrix of the dependent variable and the different independent variables in order to determine which control variables to include in the regression analysis. The matrix (included in an appendix) indicates that size of the firm, LCAP, is the only control variable with a significant relationship to Tobin´s Q. It is thus the only control variable we include in the OLS regressions.

12 Morck et al. (1988) set 5% and 25% as break points. The characteristics of our sample prevent us from establishing the same points, so we use 10% and 25%.

13 The same methodology is used to explore the possibility of alternative relationships defined by different break points. Results are not included for reasons of space.

14 The control variables are systematic risk, specific risk, and the size of the firm, measured by book value of assets.

15 A similar result is obtained using the variables OWN1, LOWN1, OWN2, LOWN2, OWN3, LOWN3, OWN4, LOWN4, and OWN5.

16 The result is the same if the other concentration variables are included in the regression (results not shown for reasons of space).

About the Author

Autores: Antonio Mínguez-Vera & Juan Francisco Martín-Ugedo
Dirección: Politechnic University of Cartagena & University of Murcia
Correo electrónico:



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Fernando González-Laxe. (Universidade da Coruña)
Venancio Salcines. (Universidade da Coruña)
Andrés Blancas. Instituto de Investigaciones Económicas (UNAM)
Editor Asociado para America Latina:
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