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

Nouman Afgan, Klaus Gugler, Robert M. Kunst

Abstract


This paper analyzes the ownership structures and investment performance of all non-financial companies listed on the Vienna Stock Exchange. A marginal q is used for estimating 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 the 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 largest ultimate shareholders pursue their objectives that include forming empires. The FE regression is preferred over random effects (RE) for the sample of pyramidal firms as the null hypothesis of the Hausman test can be rejected. State companies in Austria operated in vital industries of the economy such as oil and gas exploration, aerospace, electricity generation, and high technology industries. Depreciation is 10%. The return on investment for a state-owned company is 12% lower than the cost of capital as the hypothesis under the Wald restriction test can be rejected at the 1% significance level. This suggests that managers exercise discretion in investing, which among other factors leads to suboptimal performance. Random effects provide conclusive evidence on suboptimal investments by managers of state-owned companies.

Keywords: Corporate governance, ultimate ownership, investment performance


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