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Market Valuation and Equity Ownership Structure: The Case of Agency Conflict Regimes

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  • Pantzalis, Christos
  • Kim, Chansog Francis
  • Kim, Sungsoo

Abstract

This paper provides further evidence on the link between the firm's performance and the distribution of the common shares between insiders, blockholders and institutions. We endogenize the functional form of the market value--common equity structure relationship by using a switching regression methodology. This allows us to observe four distinct ownership structure types that constitute different agency conflict regimes. We provide evidence that supports the notion that investors recognize the existence of such regimes and assess market values differently depending on the type of agency regime the firm operates in. We find that firms with low insider stakes and low blockholder stakes and firms with high insider stakes and high blockholder stakes have the highest agency costs of free cash flow. We also find that the effect of the ownership variables on market values differs across regimes and that there are differences in the monitoring effectiveness of institutional holders and blockholders. Copyright 1998 by Kluwer Academic Publishers

Suggested Citation

  • Pantzalis, Christos & Kim, Chansog Francis & Kim, Sungsoo, 1998. "Market Valuation and Equity Ownership Structure: The Case of Agency Conflict Regimes," Review of Quantitative Finance and Accounting, Springer, vol. 11(3), pages 249-268, November.
    • Handle: RePEc:kap:rqfnac:v:11:y:1998:i:3:p:249-68
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    Cited by:

    1. Pollio, Gerald & Uchida, Koichi, 1999. "Management background, corporate governance and industrial restructuring: the Japanese upstream petroleum industry," Energy Policy, Elsevier, vol. 27(14), pages 813-832, December.
    2. Andy Lardon & Christof Beuselinck & Marc Deloof, 2019. "Does stable ownership create value? Evidence from the global financial crisis," Review of Quantitative Finance and Accounting, Springer, vol. 52(2), pages 573-642, February.
    3. Wen-Chun Lin & Shao-Chi Chang, 2012. "Corporate governance and the stock market reaction to new product announcements," Review of Quantitative Finance and Accounting, Springer, vol. 39(2), pages 273-291, August.
    4. Hsihui Chang & Hiu Choy & Kam-Ming Wan, 2012. "Effect of the Sarbanes–Oxley act on CEOs’ stock ownership and pay-performance sensitivity," Review of Quantitative Finance and Accounting, Springer, vol. 38(2), pages 177-207, February.

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