William P. Lloyd

The effect of the degree of ownership control on firm diversification, market value, and merger activity

Abstract This paper provides additional evidence that manager-controlled firms do not pursue the same objectives as owner-controlled firms. Using recent data of the Fortune 500, it is shown that 1) manager-controlled companies have a significantly greater tendency to engage in conglomerate mergers than do firms with strong owner control; 2) the income streams of manager-controlled firms are more diversified than those of companies with strong owner control; 3) individual owners tend to monitor their managers closely even if their ownership interest is relatively small, while financial institutions that are owners do not monitor closely unless their interest is large; and 4) the value-to-sales ratio is lower for manager-controlled companies than for owner-controlled ones.