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Disproportionate insider control and firm performance
Author(s) -
Hettler Barry,
Forst Arno
Publication year - 2019
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12279
Subject(s) - insider , profitability index , incentive , control (management) , sample (material) , monetary economics , insider trading , control sample , business , accounting , earnings management , economics , finance , microeconomics , earnings , management , chemistry , food science , chromatography , political science , law
The effect of disproportionate insider control on firm performance is ambiguous. Disproportionate control may enhance insiders’ ability to expropriate perquisites; on the other hand, it may provide stability of management and reduce short‐term market pressures. Using a hand‐collected sample of U.S. dual‐class firms, we find that disproportionate control is positively associated with accounting‐based performance, but negatively associated with Tobin's Q . These results are consistent with the incentives of entrenched insiders who are interested in profitability but less beholden to capital markets.