Johan Eklund

Ownership structure, control and firm performance: the effects of vote-differentiated shares

This article contributes to the literature on ownership, control and performance by exploring these relationships for Swedish listed companies (1997–2002). We find that firms, on average, are making inferior investment decisions and that the use of dual-class shares have a negative effect on performance. Marginal q is used as a measure of economic performance. It was presented in an article by Mueller and Reardon in 1993 and has recently been used in empirical studies of ownership and performance by, among others, Gugler and Yurtoglu (2003). Frequently Tobins q is used in studies of this type, but Tobins q has a number of disadvantages which can be circumvented by employing a marginal q. This study adds to earlier studies by investigating how the separation of vote and capital shares’ creates a wedge between the incentives and the ability to pursue value-maximization. The relationships between the performance and different ownership characteristics like ownership concentration and foreign ownership are also investigated.

Taxes, tax administrative burdens and new firm formation

This paper examines the tax administrative burden and its effect on new firm formation. It is well recognized that entrepreneurship and new firm formation are critical factors in determining economic growth and development. New firm entry into the marketplace enhances welfare in two distinct ways: 1) by promoting innovation, productivity and economic growth and 2) by increasing competition, which lowers prices and expands output. It is also well documented that barriers to entry reduce the likelihood that new firms will enter various sectors. We argue that the burden imposed by tax codes and tax compliance constitutes a barrier to entry that has been neglected in the previous literature. We use data from the World Bank to measure the administrative burden that the complexity of tax policy imposes on new firms. Additionally, we use a measure of new firm formation – entry density. Our data cover 118 countries over a period of six years. We find that the entry rate is significantly reduced by the tax administrative burden and that this effect is unrelated to general taxes on corporate profits and is robust to the inclusion of several important control variables.

Corporate Governance and Investments in Scandinavia - ownership concentration and dual-class equity structure

Juridical-political theories suggest that legal origin (La Porta et al. (1997)) and political factors (Roe (2003)) matters for firm performance. In Scandinavia there are a number of legal practices, with common political roots, that impinge on the distribution of corporate control, which accordingly may affect firm performance. This paper examines the return on investments and the effects of ownership concentration in a large sample of listed Scandinavian firms. As a performance measure marginal q developed by Mueller and Reardon (1993) is used. Marginal q measures the marginal return on capital relative its cost of capital. This is a more appropriate measure of performance than Tobin’s average q. The question of how ownership concentration affects managerial investment decisions is examined. A Scandinavian corporate governance feature is the wide spread use of vote-differentiation. How deviations from the one-share-one-vote principle affects this ownership-performance relationship is analyzed.

Ownership and Allocation of Capital: Evidence from 44 Countries

In an efficient economy, capital should be quickly (re)allocated from declining firms and sectors to more profitable investment opportunities. This process is affected by the concentration of corporate control, which in turn is affected by market institutions. We employ a panel of 11,984 firms across 44 countries to estimate the functional efficiency of capital markets. We adapt a measure for the efficiency of capital allocation using the accelerator principle. Our empirical results show weak property rights and highly concentrated ownership reduce the functional efficiency of capital markets.

Are there inherent biases in applying cost–benefit analysis?

ABSTRACT This article extends discussions of potential biases that can exist in applying cost–benefit analysis. While there is extensive evidence that capture can result in stakeholder manipulation of inputs, there are also claims that the analysis is inherently theoretically bias in favour of over acceptance. The article shows that, contrary to these latter claims, treating projects in isolation is unlikely to produce such bias; indeed, it is as likely as not to lead to suboptimally low acceptance rates. The reason for excessive acceptance of projects therefore is largely due to institutional capture of the analysis for either self-interest or natural human over-optimism.

The effect of the Swedish payroll tax cut for youths on firm profitability

Payroll taxes in Sweden were reduced substantially for people ages 26 years or younger on July 1, 2007. The objective of this tax cut was to lower youth unemployment. The question of how gains from payroll taxes are distributed between workers and owners of firms has been the focus of considerable theoretical and empirical attention. This paper examines the impact of the Swedish reform on firm profits using individual-level and firm-level microdata. Previous investigations into the effects of this particular reform have focused entirely on the effects on employment and wages, or have been limited to the retail sector. This paper finds that the reform was not associated with a general increase in firm profitability, but that there is some evidence of a positive effect on profits in the retail and wholesale sector.

One share–one vote: evidence from Europe

Many European companies use some type of control-enhancing mechanism, such as dual class shares or a pyramid ownership structure. Such mechanisms cause deviations from the one share–one vote principle, allocating more voting rights than cash flow rights to some shares and, in turn, providing the owners of such shares with more influence than what would be warranted by their investment. However, disproportionate influence may also arise in firms without such mechanisms. In this article, we present a method for disentangling disproportionality, which allows us to more precisely test the effects of deviations from the one share–one vote principle. We argue that previous studies suffer from a measurement problem caused by the use of a simplistic notion of disproportionality, and then we show that the effect of control-enhancing mechanisms on firm value has been overestimated in previous studies.

Pro-market reforms and allocation of capital in India

The government of India initiated pro-market reforms in the 1990s, after almost five decades of socialist planning. These and subsequent policy reforms are credited as the drivers of India’s radical economic transformation. Prior to reforms, private investment was strictly regulated and restricted to limited sectors. There have since been numerous changes in sectors important for investment, such as the bank sector, which affects outcomes of firm-level strategic decision making and investment behavior. By most estimates, India’s economy will continue to grow rapidly. The purpose of this paper is to investigate changes in investment behavior from the introduction of reforms to current conditions. Reforms changed several institutional frameworks for firm operations, allowing firms to pursue more competitive strategies. Given the importance of ownership in determining firm efficiency and access to capital, we examine the effect of ownership type, and also control for industry differences in capital allocation. We compute a measure of investment efficiency derived from the accelerator principle: Elasticity of capital with respect to output.We find that the allocation of capital has been slow to respond to reforms, indicating similar pace of firm responses. The findings suggest that firms face significant costs in adjusting their capital stock, which inturn leads to inefficient capital allocation. Surprisingly, we find no significant improvement over the 1991-2006 time period.