Using very rich and accurate data from all non-financial Oslo Stock Exchange firms in 1989-1997, we find that ownership structure matters for economic performance, that insider ownership matters the most and is almost always value-creating, that ownership concentration destroys value, and that direct ownership is superior to investing through intermediaries like institutions and the state. The value of the firm decreases with increasing board size, with the use of non-voting shares, and when firms finance with more debt and pay higher dividends. Although these effects are very robust in single-equation models and thereby suggest that our sample firms have suboptimal corporate governance mechanisms, the conclusions are quite sensitive to the choice of performance measure. Moreover, most of the significant relationships disappear in simultaneous equations models, which may in principle handle both independence between governance mechanisms and reverse causality between governance and performance, which both are ignored by single-equation models. We suspect that this apparent evidence that real-world governance systems are optimal is driven by weak instruments in the simultaneous system. Until we have a better theory of how corporate governance and economic performance interact, the simultaneous equations approach may not have much to offer in terms of valid new insights.
The research report is downloadable as a pdf file.