Impact of Ownership Concentration on the Investment Performance of Austrian Listed Companies

Nouman Afgan, Klaus Gugler, Robert M. Kunst

Abstract


Impact of Ownership Concentration on the Investment Performance of Austrian Listed Companies

 

Nouman Afgan

Preston University, Nouman.afgan@preston.edu.pk

Klaus Gugler

Vienna University of Economics and Business, Klaus.gugler@wu.ac.at

Robert M. Kunst

University of Vienna, Robert.kunst@univie.ac.at

 

 

 

ABSTRACT

 

This paper analyzes the ownership structures and investment performance of all non-financial companies listed at the Vienna Stock Exchange. A marginal q measure is used for estimating the impact of ownership concentration on investment performance of Austrian listed companies. Panel data estimation methods are applied to a sample of all non-financial listed companies over the period 2007 to 2015. Return on investment is significantly lower than the cost of capital, which insinuates that managers or largest ultimate shareholders invest beyond the optimal level of investment that maximizes shareholders’ wealth. According to the firm fixed effects (FE) regression, the return on investment for the sample of pyramidal firms is 48% lower than the cost of capital, which implies that managers or ultimate shareholders pursue their objectives that include forming empires. The FE regression is preferred over random effects (RE) for pyramidal firms as the null hypothesis of the Hausman test can be rejected. State companies in Austria operate in vital industries of the economy such as oil & gas exploration, aerospace, electricity generation, and high technology industries. Depreciation is 10%. Return on investment for a state-owned firm is 12% lower than the cost of capital as the hypothesis under the Wald restriction test can be rejected at 1% significance level. This suggests that managers exercise discretion in investing, which among other factors, leads to suboptimal investment performance. Random effects provide conclusive evidence on suboptimal investments by managers of state companies.

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Keywords:

Corporate Governance, Ultimate Ownership, Investment Performance


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