Se ha denunciado esta presentación.
Utilizamos tu perfil de LinkedIn y tus datos de actividad para personalizar los anuncios y mostrarte publicidad más relevante. Puedes cambiar tus preferencias de publicidad en cualquier momento.

Cross ownership and firm performance

1.732 visualizaciones

Publicado el

Master project by Octavi Castells Pera, Jaime López Sastre, Berenice Ramirez Hart. Barcelona GSE Master's in Finance

Publicado en: Economía y finanzas
  • Sé el primero en comentar

Cross ownership and firm performance

  1. 1. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez June 28, 2015
  2. 2. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Agenda 1 Introduction 2 Theoretical Model 3 Methodology Network Analysis Inferential Analysis 4 Data 5 Descriptive analysis 6 Empirical Results Robustness check 7 Conclusions
  3. 3. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Introduction Our paper assesses the impact of cross ownership on firm performance and industry competition through an analysis of shareholder’s networks in Spain We focus on three specific sectors: Food, Pharmaceutical and Energy, for which we show the evolution of cross ownership concentration from 2004 to 2012 Firm-level mark-ups as a measure of industry competition Market share as a measure of firm performance The chief hypothesis we present is that more connected firms coordinate their market strategies to compete less aggressively and perform better than their less connected rivals
  4. 4. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Introduction Related literature Our study relates to several papers, we will mention the most important ones: Bhattacharya and Graham (2009): They study the effect of institutional cross ownership and firm performance, measured by Tobin’s Q, in Finland. Concluding that ownership concentration does not affect firm performance He and Huang (2014): They asses how institutional cross-ownership of same industry firms affects product market behaviour in they U.S. They results show that cross-held firms experience a significantly higher market share growth than non-cross held firms Azar, Schnalz and Tecu (2015): They examine institutional ownership on the U.S. airline industry, finding that product prices are 3-11% higher because of common ownership
  5. 5. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Theoretical Model Azar, Schmalz and Tecu (2015) shows the mechanism through which cross ownership affects the profit maximization function of companies Define: M: number of investors in the industry N: number of companies in the industry j: a given company in the industry βik : share of equity of investor i on firm k πi : profits of investor i πj : profits of company j xj : strategy of company j
  6. 6. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Theoretical Model Investor i total profits from its portfolio of companies are: πi = k βikπk (1) As firms aim to maximize shareholders’ value, then firm j maximization function is: max xj ˆπj = M i=1 βij N k=1 βikπk (2) This can also be expressed in the following way: max xj ˆπj = πj + k=j i βik i βij πk (3)
  7. 7. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Theoretical Model Therefore, companies maximize their own profit plus a linear combination of the profits of other companies where its shareholders have equity stakes. The expression i βik i βij represents the weight each company puts in the profits of the rest of the firms in the industry, and thus, is a measure of the degree of connectivity between companies as a result of their cross ownership.
  8. 8. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Methodology Network Analysis We define two companies to be connected in the cross ownership network if they have at least one investor with a stake of equity above 1% Adjacency matrix: For every pair of firms, a value of ”1” represents a cross ownership connection, whereas a value of ”0” represents no connection Network Density: Measures the degree of connectivity among industry firms through cross ownership. Calculated as: Density = k i=1 j=i yij k(k−1) 2 (4) Connections generated by the largest shareholders: We also calculated the percentage of connections generated by the major shareholders at each point in time, as a measure of ownership concentration
  9. 9. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Methodology Inferential Analysis We want to evaluate the effect of cross ownership on industry competition and firm performance Measure of industry competition: Markupi,t = OperatingRevenuesi,t OpertatingExpensesi,t (5) Measure of firm performance: MarketSharei, t = Salesi,t k i=1 Salesi,t (6)
  10. 10. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Methodology Inferential Analysis OLS regressions 1 Effect of cross ownership on markup: Markupi,t = α+βNconnectionsi,t+γXi,t+δZi, t+Firmi + i,t (7) 2 Effect of cross ownership on market share: MarketSharei,t = α+βNconnectionsi,t+γXi,t+δZi, t+Firmi + i,t (8) Where: N connections: Main variable of interest. Measures the number of edges each company has with other industry firms in the cross ownership network, normalized by the total number of companies in each period of time X: Vector of industry time-varying characteristics, including Average Industry Markup and Network Density Z: Vector of firm-specific control variables, which include Leverage, Size, and Sales Growth Firm: It captures firm fixed effects.
  11. 11. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Data Two datasets: 1 Accounting data from Spanish listed companies: Obtained from Compustat Global Removed companies from the Financial Services Industry and SICAVs 2 Ownership data: Obtained from Thomson Reuters institutional holdings After merging both samples, we end up with 250,977 observations for our network analysis, and 809 firm-quarterly observations for the regressions. We focus on companies belonging to the Food (SIC 20), Pharmaceutical (SIC 28), and Energy (SIC 49) industries.
  12. 12. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Descriptive analysis Major shareholders
  13. 13. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Descriptive analysis Major shareholders
  14. 14. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Descriptive analysis Density
  15. 15. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Descriptive analysis Percentage of connections Figure: Percentage of connections generated by the largest shareholders at 1% threshold
  16. 16. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Descriptive analysis Network: Energy sector
  17. 17. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Empirical Results Azar (2012) found a positive and significant effect of Industry Network Density on Average Industry Markups He and Huang (2014) found a positive and significant effect of different measures of Cross Ownership on Market Share Growth
  18. 18. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Empirical Results Robustness check
  19. 19. Cross ownership and firm performance Octavi Castells, Jaime Lopez, Berenice Ramirez Introduction Theoretical Model Methodology Network Analysis Inferential Analysis Data Descriptive analysis Empirical Results Robustness check Conclusions Conclusions Moderate increase of Cross Ownership Network Density from 2004 to 2012. Importance of largest shareholders on Network Density varies a lot over time, as compared with the U.S. (Azar, 2012) Companies that share investors with high stakes in their equity have higher markups, providing evidence of collusive behaviour among natural competitors Further research should be conducted (specially in European countries) in order to provide regulators with a better perspective about the implications that increasing cross ownership can have in market competition and, in the end, in final consumers.

×