A Service of
Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics
Bennedsen, Morten
Working Paper Why do firms have boards?
Working paper, No. 3-2002
Provided in Cooperation with: Department of Economics, Copenhagen Business School (CBS)
Suggested Citation: Bennedsen, Morten (2002) : Why do firms have boards?, Working paper, No. 3-2002, Copenhagen Business School (CBS), Department of Economics, Frederiksberg, http://hdl.handle.net/10398/7624
This Version is available at: http://hdl.handle.net/10419/208452
Standard-Nutzungsbedingungen: Terms of use:
Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes.
Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence.
https://creativecommons.org/licenses/by-nc-nd/3.0/ www.econstor.eu :K\ GR nUPV KDYH ERDUGV"
47903 0330/803A
0DUFK
$EVWUDFW ,Q D ZRUOG ZKHUH FRUSRUDWH ERDUGV DUH QRW UHTXLUHG E\ ODZ , LGHQWLI\ D JRYHUQDQFH DQG D GLVWULEXWLYH PRWLYH IRU ERDUG HVWDEOLVKPHQW DQG ERDUG FRPSRVLWLRQ , LQYHVWLJDWH WKH SUHVHQFH RI WKHVH PRWLYHV LQ D VDPSOH RI FORVHO\ KHOG FRUSRUDWLRQV %RDUG IUHTXHQF\ LQFUHDVHV ZLWK PRUH RZQHUV LI FRQWURO LV GLOXWHG DQG LQ ODUJHU nUPV *LYHQ nUPV KDYH D ERDUG QRQ FRQWUROOLQJ RZQHUV DUH PRUH OLNHO\ WR EH RQ WKH ERDUG ZKHQ FRQWUROOLQJ RZQHUV DUH PRUH SRZHUIXO )LQDOO\ FRQVLVWHQW ZLWK DQ HTXLOLEULXP LQWHUSUHWDWLRQ RI VWUDWHJLF ERDUG HVWDEOLVKPHQW , nQG OLWWOH HmHFW RI WKH SUHVHQFH RI ERDUGV RQ SHUIRUPDQFH , FRQFOXGH WKDW ERWK PRWLYHV DUH VLJQLnFDQW DQG GLVFXVV UHODWHG FRUSRUDWH JRYHUQDQFH LPSOLFDWLRQV
.H\ZRUGV %RDUGV JRYHUQDQFH GLVWULEXWLYH FRQoLFWV XOWLPDWH RZQHUVKLS -(/ &OVVLILFDWLRQ * /
, DP JUDWHIXO WR .DVSHU 1LHOVHQ IRU H[FHOOHQW UHVHDUFK DVVLVWDQFH WR +DQV &ULVWLDQ .RQJVWHG IRU HFRQRPHWULF DGYLFH DQG WR 0DUWLQ %URZQLQJ DQG 6WHHQ 7KRPVHQ IRU KHOSIXO FRPPHQWV DQG GLVFXVVLRQV A 'HSDUWPHQW RI (FRQRPLFV &RSHQKDJHQ %XVLQHVV 6FKRRO 6ROEMHUJ 3ODGV ) 'HQPDUN DQG &HQWHU IRU (FRQRPLF DQG %XVLQHVV 5HVHDUFK +ZZZFHEUGN, (PDLO PEHFR#FEVGN :(% KWWS ZZZFEVGNVWDmPRUWHQEHQQHGVHQ ,QWURGXFWLRQ
,Q D ZRUOG ZKHUH ERDUGV DUH QRW UHTXLUHG E\ ODZ ZKLFK PRWLYHV ZRXOG DQ RZQHU RU D JURXS RI RZQHUV RI D FRUSRUDWLRQ KDYH WR HVWDEOLVK VXFK D UHVRXUFH FRQVXPLQJ LQVWLWXWLRQ" ,Q WKLV DQDO\VLV , SURYLGH HYLGHQFH IRU WZR VXFK PRWLYHV RQH UHODWHG WR WKH VHSDUDWLRQ RI RZQHUVKLS DQG FRQWURO DQG RQH UHODWHG WR GLVWULEXWLRQDO FRQoLFWV EHWZHHQ FRQWUROOLQJ DQG QRQFRQWUROOLQJ RZQHUV 7KH PRVW REYLRXV PRWLYH RU JURXS RI PRWLYHV IRU YROXQWDU\ ERDUG HVWDEOLVK PHQW LV WKDW ERDUGV FUHDWH nUP YDOXH E\ JRYHUQLQJ WKH nUP DQG WKH PDQDJHPHQW 7KLV JRYHUQDQFH PRWLYH IRU ERDUG HVWDEOLVKPHQW GRPLQDWHV PRVW RI WKH OHJDO OLW HUDWXUH *HJ &ODUN * 0 DQG (DVWHUEURRN DQG )LVFKHO * 0 DQG * 00 DV ZHOO DV WKH HFRQRPLF *HJ %D\VLQJHU DQG %XWOHU * 0 DQG +HUPDOLQ DQG :HLVEDFK * 00 DQG EXVLQHVV OLWHUDWXUH *HJ +DUYDUG %XVLQHVV 5HYLHZ RQ &RUSRUDWH *RY HUQDQFH *00 %RDUGV KLUH PRQLWRU SURYLGH LQFHQWLYHV DQG H[SHUW VXSSRUW WR WKH PDQDJHPHQW RI WKH nUP DQG WKURXJK WKLV FRQVWUXFWLYH LQWHUDFWLRQ WKH\ FRQ WULEXWH WR WKH SRVLWLYH GHYHORSPHQW RI FRUSRUDWLRQV 7KH JRYHUQDQFH PRWLYH LV URRWHG LQ WKH WUDGLWLRQDO LQWHUSUHWDWLRQ RI WKH VLJ QLnFDQW VHSDUDWLRQ EHWZHHQ RZQHUVKLS DQG FRQWURO LQ PRGHUQ FRUSRUDWLRQV nUVW SRLQWHG RXW E\ %HUOH DQG 0HDQV * 0 DQG IRUPDOL]HG E\ -HQVHQ DQG 0HFNOLQJ * 0 $FFRUGLQJ WR WKLV YLHZ RZQHUVKLS LV GLVSHUVHG DQG WKH JURXS RI RZQHUV LV ZHDN UHODWLYH WR WKH SRZHUIXO PDQDJHPHQW 7KXV WKH UROH RI WKH FRUSRUDWH ERDUG LV WR PLWLJDWH WKH DJHQF\ SUREOHP WKURXJK SURYLGLQJ LQFHQWLYHV IRU WKH PDQDJHPHQW WR DFW LQ WKH LQWHUHVW RI WKH RZQHUV ,W LV DQ HVWDEOLVKHG IDFW WKDW WKH GLVSHUVHG RZQHUVKLS VWUXFWXUH nWV RQO\ WKH ODUJHVW FRUSRUDWLRQV LQ 86 DQG 8. *6KOHLIHU DQG 9LVKQ\ * 00 7KH W\SLFDO nUP DURXQG WKH ZRUOG KDV FRQFHQWUDWHG RZQHUVKLS VWUXFWXUH ZLWK RQH RU VHYHUDO
,Q WKH OLWHUDWXUH RQ WKH UROH RI FRUSRUDWH ERDUGV WKHUH LV VRPHWLPHV D GLVWLQFWLRQ EHWZHHQ DQ DJHQF\ DSSURDFK IRFXVLQJ RQ WKH ERDUG3V PRQLWRULQJ UROH DQG DQ LQVWLWXWLRQDO DSSURDFK IRFXVLQJ RQ ERDUG3V SRVLWLYH UROH LQ SURYLGLQJ LQIRUPDWLRQ H[SHUW DGYLFH DQG D WUDLQLQJ JURXQG IRU IXWXUH &(2V 6HH 0DFH + , DQG 9DQFLO + , IRU FODVVLF LQVWLWXWLRQDO FRQWULEXWLRQV
ODUJH RZQHUV */D 3RUWD HWDO * 00 1RW RQO\ GRHV WKLV KROG IRU DOO FRXQWULHV RXWVLGH 86 DQG 8. LW LV DOVR WUXH IRU DOPRVW DOO nUPV LQ WKHVH FRXQWULHV WKDW DUH QRW DPRQJ WKH ODUJHVW SXEOLF FRUSRUDWLRQV 7KLV OHHGV PH WR WKH VHFRQG PRWLYH IRU ERDUG HVWDEOLVKPHQW LQ nUPV ZLWK FRQFHQWUDWHG RZQHUVKLS QDPHO\ WKDW ERDUGV PLWLJDWH FRQoLFWV EHWZHHQ FRQWURO OLQJ DQG QRQFRQWUROOLQJ RZQHUV , GHQRWH WKLV WKH GLVWULEXWLYH PRWLYH IRU ERDUG HVWDEOLVKPHQW ,Q nUPV ZLWK FRQFHQWUDWHG RZQHUVKLS FRQWUROOLQJ RZQHUV DUH GHHSO\ LQYROYHG LQ PDQDJHPHQW HLWKHU E\ ZRUNLQJ GLUHFWO\ LQ WKH FRUSRUDWLRQ RU E\ KDYLQJ VWURQJ LQFHQWLYHV WR SHUVRQDOO\ PRQLWRU WKH PDQDJHPHQW 7KXV VXFK RZQHUV KDYH D OLPLWHG LQWHUHVW LQ WKH PRQLWRULQJ UROH EXW RI FRXUVH WKH\ PD\ VWLOO EHQHn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nUPV WKDW KDYH D ERDUG LQ 7KH PRVW VLJQLnFDQW IDFWRU KHUH LV UHODWHG WR RZQHUVKLS VWUXFWXUH DV VXJJHVWHG E\ WKH GLVWULEXWLYH PRWLYH ,Q SDUWLFXODU WKH OLNHOLKRRG RI D nUP KDYLQJ D ERDUG LQFUHDVHV LQ WKH QXPEHU RI RZQHUV DQG LI FRQWURO LV GLOXWHG DPRQJ VHYHUDO RZQHUV /DUJHU nUPV DOVR WHQW WR KDYH ERDUGV PRUH IUHTXHQWO\ DV VXJJHVWHG E\ WKH JRYHUQDQFH PRWLYH , FRQnUP WKHVH UHVXOWV E\ XVLQJ n[ HmHFW PRGHOV IRU D VXEVDPSOH RI nUPV IRU ZKLFK , KDYH GDWD RQ WKH XOWLPDWH SHUVRQDO RZQHUVKLS GLVWULEXWLRQ IURP LQ DGGLWLRQ WR WKH GDWD 6HFRQG , SURYLGH GLUHFW HYLGHQFH IRU WKH SUHVHQFH RI WKH GLVWULEXWLYH PRWLYH E\
DQDO\]LQJ ERDUG FRPSRVLWLRQ ,Q SDUWLFXODU , VKRZ WKDW LQ nUPV PDQDJHG E\ DQ RZQHU WKHUH LV D ODUJHU WHQGHQF\ WR KDYH RWKHU RZQHUV RQ WKH ERDUG WKDQ IRU nUPV QRW PDQDJHG E\ DQ RZQHU LH QRQFRQWUROOLQJ RZQHUV DUH PRUH IUHTXHQWO\ RQ WKH ERDUG ZKHQ FRQWUROOLQJ RZQHUV DUH PRUH SRZHUIXO , DUJXH WKDW WKLV HYLGHQFH FDQ EH H[SODLQHG E\ WKH GLVWULEXWLYH PRWLYH EXW QRW E\ WKH JRYHUQDQFH PRWLYH 0\ RYHUDOO FRQFOXVLRQ LV WKHUHIRUH WKDW WKH GLVWULEXWLYH UROH RI ERDUGV LQ WKLV VDPSOH RI FORVHO\ KHOG FRUSRUDWLRQV LV DW OHDVW DV LPSRUWDQW DV WKH JRYHUQDQFH PRWLYH $IWHU DQDO\]LQJ ZK\ nUPV KDYH ERDUGV , SURFHHG WR WKH UHODWHG TXHVWLRQ GR ERDUGV FUHDWH YDOXH" LH GR ERDUGV KDYH DQ\ HmHFW RQ FRUSRUDWH SHUIRUPDQFH" 7KH UHODWLRQVKLS EHWZHHQ ERDUGV DQG SHUIRUPDQFH LV JHQHUDOO\ QHJDWLYH EXW KLJKO\ LQVLJQLnFDQW ZKHQ , XVH 2/6 ,Q DGGLWLRQ , FRQnUP WKLV LQVLJKW E\ XVLQJ D VLPSOH +HFNPDQQ FRUUHFWLRQ PHWKRG , DUJXH WKDW WKHVH UHVXOWV DUH FRQVLVWHQW ZLWK DQ HTXLOLEULXP LQWHUSUHWDWLRQ RI WKH WZR PRWLYHV IRU ERDUG HVWDEOLVKPHQW 7KHUH LV E\ QRZ D VLJQLnFDQW HPSLULFDO OLWHUDWXUH RQ YDULRXV DVSHFWV RI FRUSR UDWH ERDUGV *VHH +HUPDOLQ DQG :HLVEDFK *0 IRU D UHFHQW VXUYH\0 0RVW RI WKH VWXGLHV DQDO\]H ERDUGV LQ ODUJH SXEOLF WUDGHG *860 FRUSRUDWLRQV IRU ZKLFK ERDUG HVWDEOLVKPHQW LV D OHJDO UHTXLUHPHQW +HQFH WKH OLWHUDWXUH WDNHV WKH H[LVWHQFH RI ERDUGV DV JLYHQ $ QXPEHU RI VWXGLHV DQDO\]H WKH UHODWLRQVKLS EHWZHHQ YDULRXV DVSHFWV RI ERDUG FRPSRVLWLRQ DQG FRUSRUDWH SHUIRUPDQFH 5RVHQVWHLQ DQG :\DWW * 0 DQG * 0 nQG WKDW DQQRXQFLQJ WKDW RXWVLGH GLUHFWRUV ZLOO EH DGGHG WR WKH MRE LQFUHDVHV VWRFN SULFHV ZKHUHDV VWXGLHV WKDW UHJUHVV WKH LPSDFW RI WKH QXPEHU RI RXWVLGH GLUHFWRUV RQ SURnW LQ JHQHUDO nQG QR VLJQLnFDQW HmHFWV *HJ %D\VLQJHU DQG %XWOHU * 0 +HUPDOLQ DQG :HLVEDFK * 0 DQG %KDJDW DQG %ODFN *00 $ VHFRQG VWULQJ RI WKH OLWHUDWXUH KDV VWXGLHG WKH EHKDYLRU RI ERDUGV 0RVW QR WDEO\ WKHUH LV D SRVLWLYH UHODWLRQVKLS EHWZHHQ &(2 WXUQRYHU DQG EHORZ DYHUDJH SHUIRUPDQFH *'HQLV DQG 'HQLV * 0 DQG :HLVEDFK * 00 DQG WKHUH LV HYLGHQFH IRU WKDW VPDOOHU ERDUGV DUH PRUH HmHFWLYH PRQLWRUV RI WKH &(2 WKDQ ODUJHU ERDUGV
* RI ERDUG HVWDEOLVKPHQW )LQDOO\ , GLVFXVV SROLF\ LPSOLFDWLRQV RI P\ nQGLQJV DQG FRQFOXGH LQ 6HFWLRQ 2 Data and legal setting 7R EH DEOH WR LQYHVWLJDWH ZKLFK PRWLYHV RZQHUV KDYH ZKHQ WKH\ HVWDEOLVK D ERDUG LW LV FRQGXFLYH WR VWXG\ nUPV IRU ZKLFK WKHUH LV QR OHJDO UHTXLUHPHQW RI ERDUG HVWDEOLVKPHQW 7KLV OHDYHV RXW DOO SXEOLF WUDGHG FRUSRUDWLRQV ZRUOGZLGH )XUWKHU PRUH WR ULJRURXVO\ DQDO\]H WKH LQWHUDFWLRQ EHWZHHQ RZQHUVKLS VWUXFWXUH ERDUG HVWDEOLVKPHQW DQG ERDUG FRPSRVLWLRQ GDWD PXVW DOVR FRQWDLQ HODERUDWHG LQIRU PDWLRQ RQ WKH RZQHUVKLS VWUXFWXUH RI WKH nUPV SUHIHUDEOH LQ VXFK D GHWDLO WKDW LW LV SRVVLEOH WR FRQVWUXFW WKH GLVWULEXWLRQ RI XOWLPDWH SHUVRQDO RZQHUVKLS IRU D VLJQLnFDQW VXEVHW RI nUPV )RU WKHVH UHDVRQV , XVH D GDWDVHW IRU 'DQLVK FORVHO\ KHOG FRUSRUDWLRQV ,Q 'HQPDUN FORVHO\ KHOG FRUSRUDWLRQV FDQ EH LQFRUSRUDWHG DV ?DNWLHVHOVNDEHUI RU ?DQSDUWVVHOVNDEHUI %RWK nUP W\SHV KDYH OLPLWHG OLDELOLW\ EXW WKH ODWWHU KDV OHVV OHJDO LQVWLWXWLRQDO UHTXLUHPHQWV ,W UHTXLUHV D VPDOOHU DPRXQW RI FDSLWDO ZKHQ LQFRUSRUDWHG DQG WKHUH LV QR UHTXLUHPHQW DERXW KDYLQJ ERDUGV D IDFW WKDW PDNH WKHP VXLWDEOH IRU WKH SUHVHQW DQDO\VLV 7KH OHJDO PRWLYDWLRQ IRU ?DQSDUWVVHOVN DEHUI LV WKDW LW VKRXOG SURYLGH DV PXFK oH[LELOLW\ DV SRVVLEOH LQ SDUWLFXODU WR DFFRPPRGDWH WKH OLPLWHG RUJDQL]DWLRQDO UHVRXUFHV RI VPDOO nUPV ZKLFK LV ZK\ ?DQSDUWVVHOVNDEHUI FDQQRW JR SXEOLF E\ EHLQJ TXRWHG RQ D VWRFN H[FKDQJH2 0\ GDWDVHW LV H[WUDFWHG IURP D GDWDEDVH FRYHULQJ DOO 'DQLVK nUPV3 7KHUH DUH DSSUR[LPDWHO\ nUPV LQ 'HQPDUN RXW RI ZKLFK DUH ?DQSDUWVVHO VNDEHUI 7R EH LQFOXGHG LQ WKH DQDO\VLV , PDNH WZR DGGLWLRQDO UHTXLUHPHQWV WKH nUPV PRVW EH DFWLYH GHnQHG DV WKH \HDUO\ DFFRXQW VWDWHPHQW LV UHFRUGHG LQ 7KH 'DQLVK FRPSDQ\ ODZ IRU ?DQSDUWVVHOVNDEHU LV LQVSLUHG E\ WKH *HUPDQ FRPSDQ\ ODZ IRU ?*HVHOOVFKDIW PLW EHVFKU`DQNWHU +DIWXQJ= *PE+ DQG ERWK WKHVH FRUSRUDWH W\SHV KDYH PDQ\ VLPLODULWLHV ZLWK WKH 6FRUSRUDWLRQ LQ WKH 86 7KH GDWD RULJLQ WR WKH 0LQLVWU\ RI %XVLQHVV DQG 7UDGH LQ 'HQPDUN WKH GDWDVHW DQG WKHUH VKRXOG EH DW OHDVW VRPH RZQHUVKLS LQIRUPDWLRQ GHnQHG DV WKH QDPH RI DW OHDVW RQH RZQHU $IWHU LPSRVLQJ WKHVH WZR FULWHULD , HQG XS ZLWK D VDPSOH RI nUPV 3DQHO $ LQ 7DEOH VKRZV WKH VL]H RI WKHVH nUPV $OO nUPV SXEOLVK DVVHWV DQG HTXLW\ EXW , RQO\ KDYH VDOHV GDWD IRU DSSUR[LPDWHO\ RQH WKLUG RI WKH VDPSOH 7KH WDEOH VKRZV WKDW PRVW RI WKHVH nUPV DUH YHU\ VPDOO LQGHHG 7KH PHGLDQ DVVHW VL]H IRU WKH ZKROH VDPSOH LV 'NU ZKLFK LV HTXLYDOHQW WR DSSUR[L PDWHO\ 86' 7KH PHGLDQ VDOHV VL]H IRU WKH VXEVHW RI nUPV SXEOLVKLQJ WKLV LQIRUPDWLRQ LV 'NU ZKLFK LV HTXLYDOHQW WR DSSUR[LPDWHO\ 86' )RU VRPH RI WKH DQDO\VLV EHORZ , LPSRVH WKH FULWHULD WKDW GDWD FRQWDLQV XOWLPDWH RZQHUVKLS LQIRUPDWLRQ 8OWLPDWH RZQHUVKLS LQIRUPDWLRQ LV GHnQHG DV VXpFLHQW RZQHUVKLS LQIRUPDWLRQ WR WUDFN WKH GLVWULEXWLRQ RI RZQHUVKLS VWDNHV DPRQJ WKH XOWLPDWH SHUVRQDO RZQHUV RI D nUP +HQFH WR WUDFN WKH XOWLPDWH RZQHUVKLS GLV WULEXWLRQ RI D JLYHQ nUP $ , PXVW KDYH FRPSOHWH RZQHUVKLS LQIRUPDWLRQ DERXW WKH RZQHUV RI $ ,I DQ\ RI WKHVH RZQHUV DUH FRUSRUDWLRQV , PXVW KDYH FRPSOHWH RZQHUVKLS LQIRUPDWLRQ RQ WKHVH FRUSRUDWLRQ WRR 7KLV FRQWLQXHV EDFNZDUGV XQWLO , HQG XS ZLWK WKH GLVWULEXWLRQ RI XOWLPDWH SHUVRQDO RZQHUV RI FRPSDQ\ $ 7KXV LQ WKH IROORZLQJ ZKHQHYHU , VSHDN DERXW WKH QXPEHU RI RZQHUV RU WKH GLVWULEXWLRQ RI RZQHUVKLS IRU WKH VXEVDPSOH RI nUPV ZLWK XOWLPDWH RZQHUVKLS LQIRUPDWLRQ , PHDQ WKH QXPEHU RI XOWLPDWH SHUVRQDO RZQHUV RU WKH GLVWULEXWLRQ RI XOWLPDWH SHU VRQDO RZQHUVKLS ZKHUH DOO FRUSRUDWH RZQHUVKLS KDV EHHQ DVVLJQHG WR LQGLYLGXDOV 7KH VWUHQJWK RI WKH SUHVHQW DQDO\VLV LV WKDW P\ JUDQG GDWD VHW FRQWDLQV DOO nUPV LQ 'HQPDUN DQG LQ DGGLWLRQ WKHUH LV OLWWOH IRUHLJQ IRXQGDWLRQDO RU RWKHU NLQG RI QRQSHUVRQDO *XOWLPDWH0 RZQHUVKLS RI WKH WZR W\SHV RI FORVHO\ KHOG FRUSRUDWLRQV LQ 'HQPDUN +HQFH , DP DEOH WR WUDFN WKH FRPSOHWH GLVWULEXWLRQ RI XOWLPDWH SHUVRQDO RZQHUV IRU RXW RI WKH nUPV )RU WKH SXUSRVH RI DQDO\]LQJ GLVWULEXWLYH FRQoLFWV EHWZHHQ RZQHUV RI D FRU SRUDWLRQ WKH UHTXLUHPHQW RI XOWLPDWH RZQHUVKLS LQIRUPDWLRQ LQGXFHV D VLJQLnFDQW VHOHFWLRQ ELDV ,I D VWURQJ RZQHU ZLVK WR GLYHUW UHVRXUFHV IURP RWKHU RZQHUV LW PD\ EH LQ WKLV VWURQJ RZQHUBV LQWHUHVW WR REVFXUH LQIRUPDWLRQ DERXW KLV RU KHUV UHDO RZQHUVKLS VWDNH WKURXJK HJ KROGLQJ FRPSDQLHV RU QRW UHYHDOLQJ WKH WUXH RZQHUVKLS VWDNH +HQFH LW LV LPSRUWDQW WR QRWLFH WKDW GXH WR WKLV ELDV , H[SHFW WKDW WKH DPRXQW RI GLVWULEXWLYH FRQoLFWV PD\ EH ORZHU LQ WKH XOWLPDWH RZQHUVKLS GDWD VHW WKDQ LQ WKH ODUJHU GDWD VHW 3DQHO % LQ 7DEOH GLVSOD\V WKH GLVWULEXWLRQ RI nUPV RQ WKH WRWDO QXPEHU RI RZQHUV LQ P\ WZR GDWD VHW 0RVW RI WKH nUPV DUH VPDOO nUPV ZLWK D VLQJOH SHUVRQDO RZQHU EXW , VWLOO KDYH nUPV LQ WKH ODUJHU GDWD VHW DQG nUPV LQ WKH XOWLPDWH VXEVDPSOH ZLWK PXOWLSOH RZQHUV 7KH FULWHULD RI XOWLPDWH RZQHUVKLS LPSOLHV D ELDV WRZDUGV VLQJOH RZQHU nUPV DQG VOLJKWO\ VPDOOHU nUPV UHODWLYH WR WKH ODUJHU GDWD VHW ,W LV ZRUWK QRWLFLQJ WKDW SFW RU nUPV * SFW RU nUPV LQ WKH XOWLPDWH RZQHUVKLS VXEVDPSOH0 KDYH FKRVHQ WR HVWDEOLVK D ERDUG LQ 7KH QH[W VHFWLRQ DQDO\]HV ZKLFK FKDUDFWHULVWLFV WKHVH nUPV KDYH )LQDOO\ WKH PRVW UHFHQW GDWD IRU WKHVH nUPV DUH IURP )RU RI WKH nUPV LQ WKH XOWLPDWH RZQHUVKLS VXEVDPSOH , DOVR KDYH RZQHUVKLS DQG DFFRXQWLQJ GDWD IURP 7KLV LV XVHIXO IRU WKH n[HG HmHFW DQDO\VLV RI ERDUG HVWDEOLVKPHQW EHORZ (YLGHQFH RQ PRWLYHV IRU ERDUG HVWDEOLVKPHQW 3.1 Board establishment in closely held corporations. ,Q JHQHUDO WKHUH LV QR UHDVRQ WR H[SHFW WKDW DOO nUPV KDYH D ERDUG %RDUGV DUH FRVWO\ LQVWLWXWLRQV DQG FRQVXPH FRUSRUDWH UHVRXUFHV ERWK SHFXQLDU\ WKURXJK WKH UHQXPHUDWLRQ RI WKH ERDUG PHPEHUV DQG QRQSHFXQLDU\ OLNH WLPH DQG RWKHU RUJDQL]DWLRQDO UHVRXUFHV 7KH JRYHUQDQFH PRWLYH IRU ERDUG HVWDEOLVKPHQW VWDWHG WKDW ERDUGV DUH LQWURGXFHG WR JRYHUQ WKH nUP E\ KLULQJ PRQLWRULQJ DQG DFWLYHO\ VXSSRUWLQJ WKH PDQDJHPHQW RI WKH nUP $ FOHDU VWDWHPHQW RI WKH JRYHUQDQFH PRWLYH LV IRXQG LQ )DPD DQG -HQVHQ * 0 ZKR DQDO\]H WKH FRUSRUDWH ERDUG DV DQ LQWHUQDO FRQWURO PHFKDQLVP ZKLFK UHGXFHV WKH DJHQF\ SUREOHP EHWZHHQ FRQWUROOLQJ PDQDJHUV ZLWKRXW RZQHUVKLS VWDNHV DQG GLVSHUVHG RZQHUV ZLWK OLWWOH FRQWURO ?7KH FRPPRQ DSH[ RI WKH GHFLVLRQ FRQWURO V\VWHPV RI RUJDQL]DWLRQV ODUJH DQG VPDOO LQ ZKLFK GHFLVLRQ DJHQWV GR QRW EHDU D PDMRU VKDUH RI WKH ZHDOWK HmHFWV RI WKHLU GHFLVLRQV LV VRPH IRUP RI ERDUG RI GLUHFWRUV 6XFK ERDUGV DOZD\V KDYH WKH SRZHU WR KLUH n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nFDQW LQ WKHVH nUPV 7KH GLVWULEXWLYH PRWLYH IRU ERDUG HVWDEOLVKPHQW VWDWHG WKDW WKH UROH RI D ERDUG LV WR PRQLWRU WKDW DOO RZQHUV DUH WUHDWHG VLPLODU LQ WKH FRUSRUDWLRQ LQ SDUWLFXODU WKDW PLQRULW\ RZQHUV DUH QRW VHULRXV H[SORLWHG E\ PDMRULW\ RZQHUV %RDUGV UHGXFH FRQWUROOLQJ RZQHUVB DELOLW\ WR SXUVXH WKHLU RZQ LQWHUHVW E\ SURYLGLQJ D PRUH WUDQVSDUHQW GHFLVLRQ PDNLQJ HQYLURQPHQW %\ VHWWLQJ VWDQGDUGV IRU KRZ GHFLVLRQV PXVW EH WDNHQ IRU FRPPXQLFDWLRQ EHWZHHQ WKH PDQDJHPHQW DQG WKH ERDUG IRU WKH oRZ RI LQIRUPDWLRQ IURP WKH PDQDJHPHQW WR WKH ERDUG WKH ERDUG LQFUHDVHV WKH QRQFRQWUROOLQJ RZQHUVB DELOLW\ WR PRQLWRU DQG WR DmHFW WKH GHFLVLRQV WDNHQ E\ WKH FRQWUROOLQJ RZQHUV ,Q WKH DEVHQFH RI IRUPDO PRGHOV RI ZK\ nUPV KDYH ERDUGV , SURFHHG E\ LQIRU PDOO\ GHULYLQJ HPSLULFDO SUHGLFWLRQV RI WKH WZR PRWLYHV IRU ERDUG HVWDEOLVKPHQW ,Q WKH IROORZLQJ VXEVHFWLRQV , ORRN IRU WKHVH LPSOLFDWLRQV LQ GDWD $FFRUGLQJ WR WKH JRYHUQDQFH PRWLYH ERDUGV VKRXOG EH PRUH IUHTXHQW LQ nUPV ZKHUH WKH LQFUHDVHG YDOXH IURP KDYLQJ D ERDUG H[FHHGV WKH FRVW RI HVWDEOLVKLQJ DQG UXQQLQJ D ERDUG 7KH JDLQ LQ YDOXH LV FRUUHODWHG ZLWK VL]H DQG FRPSOH[LW\ RI WKH RSHUDWLRQV 7KXV P\ nUVW SUHGLFWLRQ LV WKDW VL]H DQG ERDUG HVWDEOLVKPHQW LV SRVLWLYHO\ FRUUHODWHG $ VHFRQG LPSOLFDWLRQ IURP WKH JRYHUQDQFH PRWLYH LV WKDW WKH PRUH QRLV\ HQYL URQPHQW WKH nUP RSHUDWHV LQ WKH PRUH OLNHO\ LW LV WR KDYH D ERDUG VLQFH WKH JDLQ IURP XVLQJ WKH ERDUG PHPEHUVB H[SHUW NQRZOHGJH DQG QHWZRUN LV KLJKHU 7KXV P\ VHFRQG SUHGLFWLRQ LV WKDW QRLVH DQG ERDUG HVWDEOLVKPHQW LV SRVLWLYHO\ FRUUHODWHG ,Q PDQ\ FORVHO\ KHOG FRUSRUDWLRQ ZLOO WKH RZQHUV EH GHHSO\ LQYROYHG LQ PDQ DJHPHQW ,Q SDUWLFXODU LW LV TXLWH FRPPRQ WKDW WKH &(2 LV DQ RZQHU ,Q VXFK nUPV WKH PRQLWRULQJ UROH RI WKH &(2 DFFRUGLQJ WR WKH JRYHUQDQFH PRWLYH LV OHVV LPSRUWDQW VLQFH WKH &(2BV LQFHQWLYHV DUH DOLJQHG ZLWK WKH JURXS RI RZQHUVB LQ FHQWLYHV +HQFH P\ WKLUG SUHGLFWLRQ LV WKDW WKH ERDUG IUHTXHQF\ UDWH LV ORZHU LQ nUPV ZKHUH WKH &(2 LV DQ RZQHU UHODWLYH WR nUPV ZLWK DQ RXWVLGHU DV &(2 7KH HPSLULFDO LPSOLFDWLRQ RI WKH GLVWULEXWLYH PRWLYH LV WKDW ERDUG IUHTXHQF\ LV OLQNHG WR RZQHUVKLS VWUXFWXUH ,Q SDUWLFXODU DVVXPH WKDW WKHUH LV D VLQJOH RZQHU RI D JLYHQ nUP 6LQFH WKLV RZQHU LQWHUQDOL]HG DOO FDVK oRZ LQ WKH nUP WKHUH LV QR GLVWULEXWLRQDO UHDVRQ WR KDYH D ERDUG 7R SURFHHG WKLV OLQH RI WKLQNLQJ OHW XV WKHQ DVVXPH WKDW WKH VLQJOH RZQHU LQYLWHV WZR EXVLQHVV SDUWQHUV WR EX\ D VKDUH RI WKH nUP EXW WKDW WKH LQLWLDO RZQHU NHHSV D PDMRULW\ VWDNH 7KH GLVWULEXWLRQDO PRWLYH WKHQ VWDWHV WKDW WKH QHZ RZQHUV PD\ UHTXLUH WKDW WKHUH LV HVWDEOLVKHG D ERDUG RI WKH nUP EHIRUH WKH\ DUH ZLOOLQJ WR EX\ WKHLU PLQRULW\ VKDUHV 7KH ERDUG OLPLWV WKH ROG RZQHUBV DELOLW\ WR H[SORLW WKH PLQRULW\ RZQHUV LQ WKH IXWXUH 0\ IRXUWK SUHGLFWLRQ LV WKHUHIRUH WKDW WKH QXPEHU RI RZQHUV LV SRVLWLYHO\ FRUUHODWHG ZLWK ERDUG IUHTXHQF\ 2QH ZD\ WR OLPLW WKH DPRXQW RI H[SURSULDWLRQ LQ FORVHO\ KHOG FRUSRUDWLRQ ZLWK IHZ RZQHUV LV WR GLOXWH FRQWURO DPRQJ VHYHUDO RZQHUV *VHH %HQQHGVHQ DQG :ROIHQ]RQ *0 IRU D WKHRUHWLFDO GLVFXVVLRQ DQG %HQQHGVHQ HWDO *0 IRU WKH HPSLULFDO YHULnFDWLRQ RI FRQWURO GLOXWLRQ LQ FORVHO\ KHOG FRUSRUDWLRQV0 %\ GRLQJ WKLV QR RZQHU FDQ XQLWDULO\ JRYHUQ WKH nUP DQG KHQFH RZQHUV PXVW FROODERUDWH WR DFKLHYH FRQWURO ZKLFK PD\ LQGXFH WKH JURXS RI FRQWUROOLQJ RZQHUV WR LQWHUQDOL]H D ODUJHU IUDFWLRQ RI WKH nUPBV FDVK oRZ 7KLV OLPLWV WKHLU LQWHUHVW LQ GLYHUWLQJ FRUSRUDWH UHVRXUFHV )RU WKH SUHVHQW SXUSRVH FRQWURO GLOXWLRQ LPSOLHV WKDW QR VLQJOH RZQHU FDQ DORQH GHFLGH LI D nUP VKRXOG HVWDEOLVK D ERDUG RU UHPRYH DQ DOUHDG\ HVWDEOLVKHG ERDUG ,I ERDUG HVWDEOLVKPHQW RQO\ KDSSHQV IRU GLVWULEXWLYH UHDVRQV D PDMRULW\ RZQHU ZRXOG KDYH OLPLWHG LQWHUHVW LQ HVWDEOLVKLQJ RU NHHSLQJ D ERDUG LI VKH KDG QR LQWHQWLRQ RI VHOOLQJ VRPH RI KHU RZQHUVKLS VWDNH 2Q WKH RWKHU KDQG LI FRQWURO LV GLOXWHG WKHUH LV QR VLQJOH RZQHU WKDW FDQ GHFLGH RQ WKH ERDUG GHFLVLRQ +HQFH P\ nIWK SUHGLFWLRQ LV WKDW ERDUGV VKRXOG EH PRUH IUHTXHQWO\ REVHUYHG LQ FRUSRUDWLRQV ZLWK GLOXWHG FRQWURO ,Q WKH QH[W VXEVHFWLRQ , WHVW WKHVH n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nUVW HYLGHQFH IRU WKH SUHVHQFH RI WKH GLVWULEXWLRQDO PRWLYH IRU ERDUG HVWDEOLVKPHQW 5HPHPEHU WKDW RI WKH nUPV ZLWK VRPH RZQHUVKLS LQIRUPDWLRQ FKRVH WR KDYH D ERDUG ZKLFK LV HTXLYDOHQW WR D ERDUG IUHTXHQF\ UDWH RI DSSUR[LPDWHO\ SFW 7KH WDEOH VKRZV WKDW ERDUG IUHTXHQF\ LV FOHDUO\ LQFUHDVLQJ LQ WKH QXPEHU RI RZQHUV :KHUHDV RQO\ SFW RI WKH VLQJOH RZQHG nUPV KDYH D ERDUG LW LV PRUH WKDQ KDOI RI WKH nUPV ZLWK RZQHUV DQG FORVH WR WZR WKLUGV RI WKH nUPV ZLWK RU PRUH RZQHUV 7KH VHFRQG SDUW RI WDEOH JLYHV D VLPLODU SLFWXUH IRU WKH VXEVHW RI nUPV IRU ZKLFK , KDYH XOWLPDWH RZQHUVKLS LQIRUPDWLRQ +HQFH WDEOH FRQnUPV K\SRWKHVLV IRXU DERYH 7KH nQDO SDUW RI WDEOH WDNHV D FORVHU ORRN DW WKH XOWLPDWH RZQHUVKLS VDPSOH DQG H[SORLW WKH DGGLWLRQDO LQIRUPDWLRQ DERXW *XOWLPDWH0 FRQWURO DOORFDWLRQ ,Q DGGLWLRQ WR WKH QXPEHU RI XOWLPDWH RZQHUV , KDYH DOVR GLYLGHG WKH nUPV DFFRUGLQJ WR LI FRQWURO LV GLOXWHG RU QRW DPRQJ WKHVH XOWLPDWH RZQHUV )RU WKUHH RU PRUH RZQHUV , GHnQH FRQWURO GLOXWLRQ DV QR XOWLPDWH RZQHU SRVVHVVLQJ SFW RU PRUH RI WKH FRUSRUDWLRQ ,I WKHUH DUH WZR XOWLPDWH RZQHUV FRQWURO GLOXWLRQ GHSHQGV RQ WKH GHFLVLRQ SURFHVV DQG REYLRXVO\ FRQWURO FDQQRW EH GLOXWHG LQ D VLQJOH RZQHU nUP KHQFH , IRFXV RQ nUPV ZLWK WKUHH RU PRUH RZQHUV ,W LV FOHDU IURP WKH WDEOH WKDW WKH IUHTXHQF\ RI ERDUG HVWDEOLVKPHQW LV KLJKHU ZKHQ FRQWURO LV GLOXWHG 7KLV LV WUXH IRU DQ\ QXPEHU RI RZQHUV ZKLFK LV FRQVLVWHQW ZLWK K\SRWKHVLV nYH DERYH 7DEOH SURYLGHV VSHFLnF HYLGHQFH IRU K\SRWKHVLV ZKLFK VWDWHG WKDW ERDUG IUHTXHQF\ VKRXOG EH KLJKHU LQ nUPV ZLWK RXWVLGHU &(2V *LH &(2V ZKR DUH QRW RZQHUV0 UHODWLYH WR nUPV ZLWK LQVLGHU &(2V ,Q WKH GDWDVHW , KDYH WKH QDPH RI WKH &(2 LQ WKH FRPSDQLHV DQG WKH QDPHV RI WKH RZQHUV +HQFH , VSOLW VDPSOH DFFRUGLQJ WR LI WKH &(2 LV DQ RZQHU RU QRW DQG ORRN DW WKH ERDUG HVWDEOLVKPHQW IUHTXHQF\ LQ HDFK RI WKHVH VXEVDPSOHV 3DQHO $ GRHV WKLV LQ WKH ODUJH VDPSOH RI nUPV ZLWK VRPH RZQHUVKLS LQIRUPDWLRQ DQG LW VKRZV WKDW IRU DOO FRPSDQLHV ZLWK RQH WR nYH RZQHUV LW LV WKH FDVH WKDW WKH IUHTXHQF\ RI KDYLQJ D ERDUG LV VLJQLnFDQWO\ KLJKHU ZKHQ WKH &(2 LV DQ RXWVLGHU 2QO\ DPRQJ WKH nUPV ZLWK VL[ RU PRUH RZQHUV GR , REVHUYH D KLJKHU IUHTXHQF\ ZKHQ WKH &(2 LV DQ LQVLGHU 7KH QWHVW RI GLmHUHQFH LQ WKH ERDUG IUHTXHQF\ UDWH LV VLJQLnFDQW DW WKH SFW OHYHO 7KH VDPH SLFWXUH LV GUDZQ LQ SDQHO % ZKHUH , XVH WKH XOWLPDWH RZQHUVKLS GDWD VHW 7KH RQO\ GLmHUHQFH LQ WKLV FDVH LV WKDW WKHUH LV WKH VDPH ERDUG IUHTXHQF\ DFURVV WKH WZR FDWHJRULHV IRU nUPV ZLWK WKUHH RZQHUV $JDLQ WKH QWHVW RI GLmHUHQFH LQ WKH ERDUG IUHTXHQF\ UDWH LV VLJQLnFDQW DW WKH SFW OHYHO +HQFH , FRQFOXGH WKDW ERDUG HVWDEOLVKPHQW UDWH LV KLJKHU IRU nUPV LQ ZKLFK WKH &(2 LV QRW DQ RZQHU ZKLFK LV FRQVLVWHQW ZLWK K\SRWKHVLV WKUHH 0XOWLYDULDWH DQDO\VLV 6LQFH WKH QXPEHU RI RZQHUV SUHVXPDEO\ LV FRUUHODWHG ZLWK WKH VL]H RI WKH nUP LW LV LPSRUWDQW WR PDNH PRUH JHQHUDO PXOWLYDULDEOH WHVWV IRU WKH SUHVHQFH RI WKH GLVWULEXWLYH PRWLYH LQ ERDUG HVWDEOLVKPHQW 7KH PRGHO , WHVW LV %2$5' I*12 6,=( &' 12,6( &(2 )$*(0 7KH HQGRJHQRXV YDULDEOH LV %2$5' LH LI D JLYHQ FRPSDQ\ KDV FKRVHQ WR HVWDEOLVK D ERDUG LQ 2Q WKH ULJKW KDQGV VLGH , DGG nUP VL]H QRLVH LQ WKH EXVLQHVV HQYLURQPHQW DQG &(2 RZQHUVKLS WR FDSWXUH WKH JRYHUQDQFH PRWLYH DQG WKH QXPEHU RI RZQHUV *120 DQG FRQWURO GLOXWLRQ *&'0 GHnQHG DV D GXPP\ IRU LI DOO RZQHUV KDYH OHVV WKDQ SFW RZQHUVKLS VWDNH WR FDSWXUH WKH SUHVHQFH RI WKH GLVWULEXWLRQDO PRWLYH 6LQFH WKHUH PD\ EH VRPH G\QDPLF HmHFWV RI ERDUG HVWDEOLVKPHQW , DOVR DGG WKH DJH RI WKH nUP DV DQ H[SODQDWRU\ YDULDEOH 6LQFH WKH GDWD LV OLPLWHG E\ WKH DFFRXQW LQIRUPDWLRQ SURYLGHG E\ VPDOO FORVHO\ KHOG FRUSRUDWLRQV , IRFXV RQ YDULDEOHV ZKLFK SXEOLFDWLRQ LV UHTXLUHG E\ ODZ 7KXV IRU WKH ZKROH VDPSOH P\ VL]H YDULDEOHV DUH WKH ERRN YDOXH RI DVVHWV RU WKH DPRXQW RI HTXLW\ LQ WKH FRUSRUDWLRQ , FKRRVH WKH IRUPHU LQ WKH nUVW WZR PRGHOV SUHVHQWHG LQ WDEOH ,Q DGGLWLRQ WR WKHVH YDULDEOHV DURXQG RQH WKLUG RI WKH FRPSDQLHV GR YROXQWDU\ SXEOLVK VDOHV LQIRUPDWLRQ DQG , XVH WKLV LQIRUPDWLRQ LQ 0RGHO WKURXJK $ JRRG PHDVXUH RI QRLVH IRU VPDOO &+&V LV GLpFXOW WR DFKLHYH 0\ QRLVH PHDVXUH LV WKH \HDU YDULDQFH RQ VDOHV IRU HDFK nUP 7R FRQVWUXFW WKH YDULDEOH IRU WKH QXPEHUV RI RZQHUV , EHJDQ ZLWK GXPPLHV IRU DQG RZQHUV 8VLQJ D :DOG WHVW , UHDOL]HG WKDW WKH HmHFW RI KDYLQJ DQG RZQHUV ZKHUH WKH VDPH DQG VLJQLnFDQWO\ GLmHUHQW IURP KDYLQJ RQH RU WZR RZQHUV +HQFH LQ WKH SUHVHQWHG UHJUHVVLRQV , FKRVH WR SXW LQ GXPPLHV IRU DQG RZQHUV 7DEOH SURYLGHV WKH ORJLW UHJUHVVLRQ UHVXOWV IRU GLmHUHQW PRGHOV RQ P\ GDWDVHW 0RGHO DQG XVH WKH ODUJH GDWD VHW RI DOO nUPV ZLWK VRPH RZQHUVKLS LQIRUPD WLRQ 0RGHO DQG XVH WKH VPDOOHU GDWDVHW RI nUPV ZLWK XOWLPDWH RZQHUVKLS DQG WKHVH PRGHOV LQFOXGH WKH FRQWURO GLOXWLRQ YDULDEOH 7KH UHVXOWV RI WKH VL[ PRGHOV DUH DOO YHU\ VLPLODU 7KH QXPEHU RI RZQHUV KDV D SRVLWLYH HmHFW RQ ERDUG HVWDEOLVKPHQW DQG WKLV HmHFW LV VLJQLnFDQW DW D SFW OHYHO LQ DOO VL[ UHJUHVVLRQV +HQFH WKHUH VHHP WR EH VWURQJ VXSSRUW IRU WKDW PRUH RZQHUV LQFUHDVH WKH OLNHOLKRRG WKDW D JLYHQ nUP FKRRVHV WR HVWDEOLVK D ERDUG &RQWURO GLOXWLRQ LV SRVLWLYHO\ FRUUHODWHG ZLWK ERDUG HVWDEOLVKPHQW ,Q 0RGHO ZKHUH , XVH DOO nUPV ZLWK XOWLPDWH RZQHUVKLS WKLV HmHFW LV VLJQLnFDQW DW D SFW OHYHO ,Q 0RGHO DQG WKHUH DUH PXFK OHVV nUPV VLQFH , XVH UHVSHFWLYHO\ RQH DQG nYH \HDUV RI VDOHV LQIRUPDWLRQ 7KH FRQWURO GLOXWLRQ HmHFW LV VWLOO SRVLWLYH KRZHYHU WKH HmHFW LV QRW VLJQLnFDQW LQ WKHVH VXEVHWV , DOORZ IRU QRQ OLQHDU HmHFWV IURP nUP VL]H E\ DGGLQJ VTXDUHG YDOXHV DV ZHOO 6L]H KDV D SRVLWLYH HmHFW RQ ERDUG HVWDEOLVKPHQW LQ DOO PRGHOV ,Q 0RGHO DQG WKH $66(7 YDULDEOH LV VLJQLnFDQW RQ D RQH SFW OHYHO 7KH VDPH LV WUXH IRU WKH 6$/(6 YDULDEOH LQ 0RGHO DQG 7KH VTXDUHG VL]H YDULDEOH LV QHJDWLYH DQG VLJQLnFDQW LQ DOO IRXU PRGHOV FRQnUPLQJ QRQ OLQHDU HmHFWV 7KH VLJQLnFDQFH RI WKH VL]H *DQG RWKHU YDULDEOHV0 LV OHVV VWURQJ LQ 0RGHO DQG 7KH QRLVH HmHFW LV PHDVXUHG WKURXJK WKH 9$5DQG 9$5 YDULDEOH LQ 0RGHO DQG 7KH VLJQ LV SRVLWLYH LQ ERWK PRGHOV RQ 9$5DQG QHJDWLYH RQ 9$5 ZKLFK LQGLFDWHV WKDW D PRUH QRLV\ YDULDEOH LV FRUUHODWHG ZLWK KLJKHU ERDUG IUHTXHQF\ +RZHYHU WKHVH HmHFWV DUH QRW VLJQLnFDQW DW D SFW OHYHO 7KH &(2 YDULDEOH LV QHJDWLYHO\ FRUUHODWHG ZLWK ERDUG HVWDEOLVKPHQW LQ DOO PRGHOV ZKLFK PHDQV WKDW nUPV ZLWK DQ LQVLGHU &(2 WHQGV WR KDYH ORZHU ERDUG IUHTXHQF\ 7KLV HmHFW VLJQLnFDQW DW D RQH SFW OHYHO IRU nYH RXW RI VL[ PRGHOV )LQDOO\ WKH UHJUHVVLRQV VKRZ WKDW ROGHU nUPV DUH VLJQLnFDQWO\ PRUH OLNHO\ WR KDYH D ERDUG ,W LV ZRUWK QRWLQJ WKDW WKH H[SODQDWRU\ SRZHU RI WKH PRGHOV DUH QRW JUHDW 7KH 3VHXGR5 LV SFW LQ 0RGHOV DQG EXW DV ORZ DV SFW LQ 0RGHO ,Q DGGLWLRQ WR WKH SUHVHQWHG PRGHOV , KDYH UXQ YDULRXV RWKHU YHUVLRQV WR FKHFN IRU UREXVWQHVV RI P\ UHVXOWV )LUVW , FKHFNHG RQ YDULRXV VXEVDPSOHV RI WKH nUPV HJ ODUJH nUPV ERWK FRQGLWLRQHG RQ $66(76 ODUJHU WKDQ PLOO 'NU DQG FRQGLWLRQHG RQ 6$/(6 EHLQJ SXEOLVKHG DQG ODUJHU WKDQ PLOO 'NU 6HFRQG , FKHFNHG LI WKH UHVXOWV ZHUH GULYHQ E\ WKH ODUJH QXPEHU RI VLQJOHRZQHG nUPV E\ UXQQLQJ WKH PRGHOV RQ nUPV ZLWK WZR RU PRUH RZQHUV 7KLUG , DVVXPHG D QRUPDO GLVWULEXWLRQ *SURELW0 LQVWHDG RI D ORJLVWLF GLVWULEXWLRQ *ORJLW0 1RQH RI WKH DERYH UHVXOWV FKDQJHG LQ DQ\ RI WKHVH H[HUFLVH KRZHYHU ZKHQ WKH GDWDVHW ZHUH UHGXFHG WR D VPDOO QXPEHU RI nUPV VRPH RI WKH UHVXOWV ZHUH OHVV VLJQLnFDQW )L[HG HmHFW DQDO\VLV Using cross-sectional data for board establishment raises the potential critique, that some of the omitted or variables may be correlated with the residual implying that there is a potential for biased results. I can partly check for this by exploiting that I in addition to the 1999 data also have data from 1996 for a large subset of my ¯rm sample. Table 5 shows changes in size and number of owners for four group of ¯rms with some ownership information: ¯rms that did not have a board in either 1996 nor 1999; ¯rms that decided to establish a board during the four years; ¯rms that decided to remove an existing board; and, ¯rms that had a board in both periods. It is worth remarking that there is an alternative for ¯rms without a board in 1996 that decide to establish a board, namely to change the status of the ¯rm from \anpartsselskab" to \aktieselskab" which is the standard stock corporation and for these type of ¯rms boards are required by law. Similarly, a \aktieselskab" may have chosen to become \anpartsselskab" because it wants to remove its board. These two groups of ¯rms fall out of my sample, but I can still track them in my grand dataset, since this contains all ¯rms in Denmark. In Panel A I have added these ¯rms to the sample, whereas Panel B presents analysis for ¯rms which are \anpartselskaber" in both years. The two panels of Table 5 provide the same picture: Firms that decided to establish a board between 1996 and 1999 grew more than ¯rms that had no change in board statue. Firms that decided to remove a board, on the contrary, did in average experience a reduction in size. 15 All four groups of ¯rms experienced a reduction in the average number of owners. However, the average reduction was highest for the ¯rms that removed a board and lowest for the ¯rms that decided to establish a board. Having two observations for each ¯rm allows me to run a conditional logit regression (Green (2000) pp. 862-65) in which all ¯rm speci¯c characteristics are left out. Thus, if there is any ¯rm speci¯c noise that I was not able to capture above this is left out in the following. The result of such an conditional logit model is presented for eight di®erent models in Table 6. Notice that the conditional logit procedure leaves out all ¯rms in which there has been no change in board status, thus in the large data set of all ¯rms with some ownership information (Model 1) there are only 302*2 observations back in this sample. This number reduces to 136*2 in the sample with ultimate ownership information (Model 2). If I in addition requires sales information (Model 5 to 8) the numbers reduces further to 69*2 respective 50*2. The number of owners (now measured as the actual number of owners) is positively correlated with board establishment in all eight models. In the samples with more than 100 ¯rms (Model 1 through 4) this e®ect is signi¯cant on a 1 pct. level. Size is also positively correlated with board establishment and this e®ect is signi¯cant in all eight models. I use two measures of the relationship between management and the owners. The ¯rst is if the CEO is an owner or not, while the second is the actual ownership stake of the CEO. The CEO insider e®ect is negatively correlated with board establishment in the ¯rst two models and this e®ect is signi¯cant for the ultimate sample. In Model 5 and 6 the sign is reversed, however, the e®ect is highly insigni¯cant. The size of the CEO's ownership stake is negatively correlated to board es- tablishment frequency for all four relevant models. This e®ect is signi¯cant at a 16 1 pct. level in the two models using the ultimate ownership sample. To sum up, I believe the analysis has con¯rmed the insight from the cross sectional analysis above: board frequency is positively correlated to the number of owners and size and negatively correlated with the size of the CEO's owner- ship stake. Unfortunately, none of the 302 ¯rms that changed board during these four years also experienced a change in control dilution, implying that I can- not meaningfully add control dilution to the list of variables in this ¯xed e®ect analysis. &RPSRVLWLRQ HYLGHQFH I now proceed to provide supplemental evidence for the distributive motive by analyzing the composition of the boards. The motivation for this adjunct anal- ysis is that even though the evidence presented above, that board frequency is positively correlated with number of owners and control dilution, is consistent with the distributive motive, it may not be completely inconsistent with the gov- ernance motive. In particular; having more owners, often implies that the largest owner is smaller and thus has less incentive to monitor the management. Hence, it is possible to argue that a higher board frequency in this case is also consis- tent with the governance motive. A similar argument exists with respect to the control dilution e®ect: having diluted control implies that the largest owner is relatively small, which reduces the largest owner's incentive to monitor the man- agement. I argue that the additional evidence in the present subsection support the distributive motive and cannot be explained by the governance motive. In general board members are either owners, employees (inclusive managers) in the ¯rm or outside representatives which I for simplicity will call \experts". Consider two ¯rms which have chosen to establish boards, but where one ¯rm has an owner manager and the other ¯rm has an outsider manager. Who should be on the boards of these ¯rms? 17 The distributive motive predicts that there should be more owners on the board when the ¯rm is managed by an owner. If non-controlling owners are afraid of being oppressed by the controlling owner and being on the board increases the non-controlling owners' resistance to being exploited, then there should be a tendency towards having a larger share of the non-controlling owners on the board when the controlling owner is a manager in the ¯rm, relative to ¯rms with outsider managers. According to the governance motive, there is less or the same reason to have owners on the board, when the manager is an owner herself, since her incentives are more aligned with the group of owners. With an owner manager it may, therefore, be more bene¯cial to improve the advising role of the board by including more outside experts and reduce the monitoring role by reducing the number of owners on the board. Thus, the governance motive predicts a smaller share of non-controlling owners being board members when the controlling owner is a manager, relative to when the manager is an outsider. In table 7, I split the sample according to if the CEO is an owner or not. I provide three measures of board composition: ¯rst, if there exists at least one non-CEO board member who is also an owner; second, the frequency of having all non-CEO owners on the board; and third, the share of all non-CEO owners who in addition are board members. Since this exercise requires multiple owners, I restrict my sample to the ¯rms with ultimate ownership information and more than two owners in panel a) and three or more owners in panel b). In both panels, there is a clear tendency of having more owners among the board members when the ¯rm is managed by an owner. This holds for all three composition measures and both panels. If the ¯rm has an insider owner there is clearly a higher frequency of having one additional non-CEO owner among the board members, a higher frequency of having all non-CEO owners on the board and a higher average share of the non-CEO owners who are also board 18 members. All these e®ects are signi¯cant at the 1 pct. level using a Q WHVW 7KH RQO\ GLmHUHQFH EHWZHHQ WKH WZR SDQHOV LV WKH KLJKHU ERDUG IUHTXHQF\ LQ SDQHO E0 UHoHFWLQJ WKDW LQ JHQHUDO nUPV ZLWK WZR RZQHUV KDYH D ORZHU ERDUG IUHTXHQF\ WKDQ nUPV ZLWK PRUH RZQHUV 7DEOH SUHVHQWV WKH UHJUHVVLRQ UHVXOWV IRU D JHQHUDO DQDO\VLV RI WKH FRPSRVLWLRQ HYLGHQFH , HVWLPDWH WKH HmHFW RI KDYLQJ DQ LQVLGHU DV &(2 RQ WZR PHDVXUHV RI ERDUG FRPSRVLWLRQ WKH OLNHOLKRRG RI KDYLQJ RQH QRQ&(2 RZQHU RQ WKH ERDUG DQG WKH UDWLR RI QRQ&(2 ERDUG PHPEHUV 7R PHDVXUH LI WKH &(2 LV DQ RZQHU , ERWK XVH D GXPP\ IRU &(2 RZQHUVKLS DQG WKH DFWXDO RZQHUVKLS VWDNH RZQHG E\ WKH &(2 , FRQWURO IRU VL]H XVLQJ HLWKHU DVVHWV RU VDOHV DQG IRU OHYHUDJH XVLQJ WKH UDWLR RI HTXLW\ WR DVVHWV 3DQHO $ VKRZV WKH UHVXOWV IRU DOO nUPV ZLWK XOWLPDWH RZQHUVKLS DQG WZR RU PRUH RZQHUV )URP 0RGHO , QRWLFH WKDW KDYLQJ DQ RZQHU &(2 LQFUHDVHV WKH OLNHOLKRRG RI KDYLQJ DW OHDVW RQH RWKHU QRQ&(2 RZQHU RQ WKH ERDUG 7KLV HmHFW LV VLJQLnFDQW DWDSFWOHYHO,QDGGLWLRQ 0RGHO VKRZV WKDW WKH OLNHOLKRRG RI KDYLQJ DW OHDVW RQH QRQ&(2 RQ WKH ERDUG LQFUHDVHV LQ WKH VL]H RI WKH &(2V RZQHUVKLS VWDNH 7KLV LV FOHDUO\ FRQVLVWHQW ZLWK WKH GLVWULEXWLYH PRWLYH WKH PRUH SRZHUIXO WKH FRQWUROOLQJ RZQHU LV WKH PRUH LPSRUWDQW LW ZLOO EH IRU WKH QRQFRQWUROOLQJ RZQHUV WR EH SUHVHQW RQ WKH ERDUG 7KH UHVXOW LV FRQnUPHG LQ 0RGHO DQG ZKLFK XVHV WKH UDWLR RI QRQ&(2 RZQHUV RQ WKH ERDUG ,W LV LQFUHDVLQJ LQ WKH SUHVHQFH RI DQ RZQHU &(2 DQG WKLV HmHFW LV VLJQLnFDQW RQ D SFW OHYHO ,Q 0RGHO WKH VL]H RI WKH &(2BV RZQHUVKLS VWDNH LV DJDLQ SRVLWLYHO\ FRUUHODWHG WR WKH UDWLR RI QRQ&(2BV RQ WKH ERDUG EXW WKH HmHFW LV QRW VLJQLnFDQW DQ\ PRUH 8VLQJ WKH PXFK VPDOOHU 6$/(6 VDPSOH LQ 0RGHO WR VXSSRUWV WKH LQVLJKW DERYH +DYLQJ DQ RZQHU &(2 LQFUHDVHV WKH OLNHOLKRRG RI KDYLQJ D QRQ&(2 RZQHU RQ WKH ERDUG DQG LQFUHDVHV WKH UDWLR RI QRQ&(2BV RQ WKH ERDUG +RZHYHU RQO\ WKH IRUPHU HmHFW LV QRZ VLJQLnFDQW DW D SFW OHYHO 7KH DFWXDO RZQHUVKLS VWDNH LV VWLOO SRVLWLYHO\ FRUUHODWHG WR WKH OLNHOLKRRG RI KDYLQJ D QRQ&(2 RQ WKH ERDUG DQG WR WKH UDWLRBV RI QRQ&(2V RQ WKH ERDUG EXW WKH HmHFWV DUH QRW VLJQLnFDQW 3DQHO % LQ 7DEOH SUHVHQWV WKH DQDO\VLV IRU WKH VPDOOHU VDPSOH RI nUPV ZLWK XOWLPDWH RZQHUVKLS DQG WKUHH RU PRUH RZQHUV 7KH UHVXOWV FRQnUPV WKH LQVLJKW IURP WKH DQDO\VLV DERYH 7KH HmHFW RI KDYLQJ D &(2 RZQHU LV SRVLWLYH RQ ERWK PHDVXUHV RI KDYLQJ RZQHUV RQ WKH ERDUG DQG WKHVH HmHFWV DUH VLJQLnFDQW LQ DOO UHJUHVVLRQV 7KH DFWXDO VL]H RI WKH &(2 RZQHUVKLS LV DOVR SRVLWLYHO\ FRUUHODWHG ZLWK ERWK FRPSRVLWLRQ PHDVXUHV HYHQ WKRXJK WKH HmHFWV DUH QRW VLJQLnFDQW RQ D SFW OHYHO 7R VXP XS , EHOLHYH WKH SUHVHQWHG FRPSRVLWLRQ HYLGHQFH SURYLGH FOHDU VXSSRUW IRU WKH GLVWULEXWLYH UROH RI ERDUGV %RDUG UHSUHVHQWDWLYHV DUH FKRVHQ DV UHSUH VHQWDWLYH IRU WKH LQGLYLGXDO RZQHUV 1RQFRQWUROOLQJ RZQHUV DUH FRQFHUQHG DERXW WKH SRZHU RI WKH FRQWUROOLQJ RZQHU*V0 DQG LI WKH FRQWUROOLQJ RZQHUV DUH SRZHUIXO WKH QRQFRQWUROOLQJ RZQHUV KDYH ODUJHU LQFHQWLYH WR VHHN LQo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nUVW HPSLULFDO DQDO\VLV RI WKH PRUH IXQGDPHQWDO TXHVWLRQ GR nUPV ZLWK ERDUGV SHUIRUP GLmHUHQWO\ IURP nUPV ZLWKRXW ERDUGV :KDW LV WKH H[SHFWHG FRQQHFWLRQ EHWZHHQ ERDUG HVWDEOLVKPHQW DQG SHUIRU PDQFH" 7R VRPH H[WHQW LW PD\ GHSHQG RQ ZKLFK PRWLYH WKH RZQHUV KDG ZKHQ WKH ERDUG ZDV HVWDEOLVKHG ,I WKH ERDUG ZDV HVWDEOLVKHG WR KLUH DQG PRQLWRU WKH PDQDJHPHQW DQG GHYHORS WKH RYHUDOO VWUDWHJLF JRDOV RI WKH FRUSRUDWLRQ LW LV H[ SHFWHG WKDW D ERDUG FRQWULEXWHV SRVLWLYHO\ WR D nUPBV SHUIRUPDQFH ,I QRW WKHUH LV OLWWOH UHDVRQ IRU VSHQGLQJ FRUSRUDWH UHVRXUFHV RQ KDYLQJ WKLV FRVWO\ LQVWLWXWLRQ +RZHYHU WKLV DUJXPHQW GRHV QRW LPSO\ WKDW , VKRXOG REVHUYH D SRVLWLYH HmHFW RI ERDUGV RQ SHUIRUPDQFH LQ D FURVVVHFWLRQDO GDWDVHW ,I LW LV EHOLHYHG WKDW HDFK nUP KDV PDGH DQ RSWLPDO FKRLFH RQ ERDUG HVWDEOLVKPHQW DFFRUGLQJ WR WKH JRYHU QDQFH PRWLYH WKHUH VKRXOG EH QR VLJQLnFDQW UHODWLRQVKLS DW DOO )LUPV ZLWKRXW ERDUGV KDYH FDOFXODWHG WKDW WKH LQFUHDVH LQ SHUIRUPDQFH GRHV QRW FRYHU WKH FRU SRUDWH UHVRXUFHV WKDW D ERDUG FRQVXPHV DQG nUPV ZLWK ERDUGV KDYH FRPH WR WKH RSSRVLWH FRQFOXVLRQ 7KXV LQ HTXLOLEULXP WKHUH VKRXOG EH QR YLVLEOH HmHFW LQ FURVVVHFWLRQDO GDWD ,I WKH ERDUG PDLQO\ LV DQ GLVWULEXWLYH GHYLFH IRU WKH RZQHUV LW LV QRW FOHDU D SULRUL ZKDW WKH UHODWLRQVKLS EHWZHHQ SHUIRUPDQFH DQG ERDUG HVWDEOLVKPHQW LV H[SHFWHG WR EH ,Q WKH DEVHQW RI D ERDUG FRQWURO LV DOORFDWHG WR D &(2 DQG SUHVXPDEO\ WR WKH ODUJHVW RZQHU LI WKH\ DUH GLmHUHQW ,W LV FRQFHLYDEOH WKDW WKH\ DUH DEOH WR DFKLHYH PRUH EHQHnWV IURP WKH FRUSRUDWLRQ WKDQ WKH\ ZRXOG KDYH EHHQ DEOH WR LQ WKH SUHVHQFH RI D ERDUG DQG WKLV ZRXOG LPSO\ WKDW WKH UHVW RI WKH RZQHUV DUH ZRUVH Rm +RZHYHU WKLV PD\ RU PD\ QRW DmHFW SHUIRUPDQFH GHSHQGLQJ RQ WKH PHFKDQLVPV WKURXJK ZKLFK WKH FRQWUROOLQJ RZQHU DQGRU &(2 DFKLHYH WKHLU JRDO 7KH PHFKDQLVPV PD\ LQFOXGH VXERSWLPDO LQYHVWPHQW DFWLYLWLHV WKDW LQFUHDVH WKHLU SULYDWH EHQHnW RU LW PD\ LQFOXGH RWKHU NLQG RI ?WXQQHOLQJI DFWLYLWLHV VXFK DV WUDQVIHU SULFLQJ ZLWK FRUSRUDWLRQV RZQHG E\ WKH FRQWUROOLQJ RZQHU*V0 ,Q VXFK FDVHV HVWDEOLVKPHQW RI D ERDUG VKRXOG LQFUHDVH WKH SHUIRUPDQFH RI WKH nUP WKURXJK OLPLWLQJ WKHVH DFWLYLWLHV 2Q WKH RWKHU KDQG WKH PHFKDQLVPV PD\ LQFOXGH SXUH GLVWULEXWLRQDO DFWLYLWLHV VXFK DV SD\LQJ RXW WKH VXUSOXV LQ KLJKHU VDODULHV RU ERQXVHV WR WKH FRQWUROOLQJ RZQHU DQG WKH &(2 ,Q WKLV FDVH WKHUH LV QR UHDVRQ WR H[SHFW WKDW WKH LQWURGXFWLRQ RI D ERDUG LQFUHDVHV RSHUDWLQJ SHUIRUPDQFH )LQDOO\ LW PD\ DOVR EH WKDW ERDUGV HVWDEOLVKHG RQO\ EHFDXVH RI WKH GLVWULEXWLYH PRWLYH PD\ GHFUHDVH nUP YDOXH ERDUGV LQFUHDVH WKH OHYHO RI PRQLWRULQJ RI WKH PDQDJHPHQW DQG DV VXJJHVWHG E\ %XFKDUGW HWDO * 0 WKLV PD\ GHFUHDVH WKH LQFHQWLYHV RI WKH &(2 LQ D VLWXDWLRQ ZKHUH SDUW RI ZKDW GULYHV D &(2 LV WKH SRVVLELOLW\ RI SXUVXLQJ SURMHFWV WKDW SURYLGH KHU ZLWK SULYDWH EHQHnWV RU LW PD\ VLPSO\ EH WKDW WKH LQWURGXFWLRQ RI D ERDUG PDNHV WKH GHFLVLRQ SURFHVVHV PRUH FXPEHUVRPH DQG VORZ ,Q WKHVH FDVHV WKH RZQHUV DUH ZLOOLQJ WR LQFXU WKH RYHUDOO FRVW DVVRFLDWHG ZLWK WKH LQWURGXFWLRQ RI WKH ERDUG WR EH VXUH WKDW WKH\ DUH QRW H[SORLWHG E\ RWKHU RZQHUV RU PDQDJHPHQW 6LQFH WKH H[SHFWHG HmHFW GHSHQGV RQ LI nUPV DUH LQ HTXLOLEULXP RU RXWRI HTXLOLEULXP WKH UHODWLYH LPSRUWDQFH RI WKH WZR PRWLYHV DQG WKH VLJQ RI WKH GLV WULEXWLYH PRWLYHBV HmHFW RQ SHUIRUPDQFH WKH UHODWLRQVKLS EHWZHHQ ERDUGV DQG SHUIRUPDQFH PXVW HYHQWXDOO\ EH DQ HPSLULFDO TXHVWLRQ 7DEOH UHSRUWV WKH UHODWLRQVKLS EHWZHHQ SHUIRUPDQFH DQG ERDUG HVWDEOLVKPHQW LQ P\ GDWD 7KH FKRLFH RI SHUIRUPDQFH DQG H[SODQDWRU\ YDULDEOHV LV VLJQLnFDQW UHVWULFWHG E\ ZKDW WKHVH VPDOO FORVHO\ KHOG FRUSRUDWLRQV GR SXEOLVK LQ WKHLU \HDUO\ VWDWHPHQWV $OO nUPV SXEOLVK SUH WD[ SURnW DQG SFW SXEOLVK RSHUDWLQJ SURnW ,Q JHQHUDO RSHUDWLQJ SURnW LV D EHWWHU SHUIRUPDQFH PHDVXUH WKDQ SUH WD[ SURnW IRU WZR UHDVRQV )LUVW WKH ODWWHU LQFOXGH nQDQFLDO DFWLYLWLHV DQG RWKHU QRQRSHUDWLRQDO DFWLYLWLHV 6HFRQG SUH WD[ SURnW IRUPV WKH EDVLV RI ZKDW WKH nUP KDV WR SD\ LQ WD[ ,Q WKHVH VPDOO nUPV PDQDJHUV DQG RZQHUV KDYH D VLJQLnFDQW GLVFUHWLRQ LQ GHFLGLQJ KRZ PXFK WD[ D nUP VKRXOG SD\ LQ D JLYHQ \HDU 7KXV SUH WD[ SURnW PD\ WR D ODUJH H[WHQW UHoHFW WD[ FRQVLGHUDWLRQ UDWKHU WKDQ WKH DFWXDO SHUIRUPDQFH RI WKH nUP , DQDO\]H IRXU GLmHUHQW PRGHOV ZKLFK GLmHU RQ VDPSOH VL]H DQG LQIRUPDWLRQ UHTXLUHPHQW , DSSO\ WZR GLmHUHQW ZD\V RI HVWLPDWLQJ HDFK PRGHO )LUVW , XVH VLPSOH 2/6 UHJUHVVLRQ DQG VHFRQG , DSSO\ D +HFNPDQ FRUUHFWLRQ PHWKRG ZKHUH WKH WUHDWPHQW SDUW LV WKH GHFLVLRQ WR HVWDEOLVK D ERDUG RU QRW ,Q WKH nUVW PRGHO *0RGHO *D00 , GR QRW XVH VDOHV LQIRUPDWLRQ WKXV , DP DEOH WR DQDO\]H DOPRVW DOO nUPV LQ P\ VDPSOH XVLQJ WKH UDWLR RI SUHWD[ SURnW WR DVVHWV DV WKH HQGRJHQRXV YDULDEOH , FRQWURO IRU WKH GHJUHH RI OHYHUDJH WKURXJK WKH UDWLR RI HTXLW\ WR DVVHWV DQG , FRQWURO IRU VL]H WKURXJK WKH ORJDULWKP RI DVVHWV 0RGHO *E0 WR *G0 XVH VDOHV GDWD DQG WKXV OLPLW WKH QXPEHU RI nUPV VLJQLnFDQWO\ 7KH\ DOO KDYH RSHUDWLQJ SURnW WR VDOHV DV WKH HQGRJHQRXV YDULDEOH DQG FRQWURO IRU WKH GHJUHH RI OHYHUDJH DV LQ 0RGHO *D0 +RZHYHU LQ WKHVH PRGHOV , FRQWURO IRU VL]H XVLQJ WKH ORJDULWKP WR 6$/(6 0RGHO *E0 WHVWV RQ DOO nUPV ZLWK VDOHV LQIRUPDWLRQ ZKHUHDV 0RGHO *F0 UHTXLUHV LQ DGGLWLRQ WKDW , KDYH XOWLPDWH RZQHUVKLS LQIRUPDWLRQ DQG 0RGHO *G0 UHTXLUHV XOWLPDWH RZQHUVKLS DQG ODUJHU nUPV *PHDVXUHG DV VDOHV JUHDWHU WKDQ PLOO '.50 7KH HmHFW RI ERDUG HVWDEOLVKPHQW LV LQ JHQHUDO QHJDWLYH EXW LQVLJQLnFDQW ZKHQ , XVH 2/6 2QO\ LQ 0RGHO *G0 LV WKH %2$5' YDULDEOH SRVLWLYH DQG LQ DGGLWLRQ VLJQLnFDQW RQ D SFW OHYHO ,Q WKH UHVW RI WKH PRGHOV WKH ERDUG YDULDEOH LV QHJDWLYH DQG IDU IURP EHLQJ VLJQLnFDQW 7KH SLFWXUH GUDZQ IURP WKH 2/6 UHJUHVVLRQV GRHV QRW FKDQJH VLJQLnFDQWO\ ZKHQ , DSSO\ WKH VLPSOH +HFNPDQ FRUUHFWLRQ PHWKRG 7KH ?WUHDWPHQW SDUW RI WKH DSSURDFK *LH LI WKH nUPV KDYH ERDUGV RU QRW0 LV PRGHOHG XVLQJ WKH UHOHYDQW YDULDEOHV IURP 7DEOH H[FOXGLQJ LQGXVWU\ GXPPLHV ,Q SDUWLFXODU , XVH 0RGHO *0 DV WKH ORJLW PRGHO LQ 0RGHO *D0 DQG 0RGHO *0 DV WKH ORJLW PRGHO LQ 0RGHO *E0 WR *G0 7KH HmHFW RI ERDUG HVWDEOLVKPHQW LV GHULYHG DV WKH FRHpFLHQW WR WKH ,QYHUVH 0LOOV 5DWLR *VHH -RKQVWRQ DQG 'L1DULR * 0 SS ^ 0 ,Q 0RGHO *D0 , REVHUYH DQ SRVLWLYH HmHFW IURP ERDUG RQ SHUIRUPDQFH DQG WKLV HmHFW LV VLJQLnFDQW RQDSFWOHYHO,Q0RGHO*E0WR*G0WKHERDUGHmHFWLVIDUIURP EHLQJ VLJQLnFDQW DQG DOWHUQDWHV EHWZHHQ EHLQJ SRVLWLYH DQG QHJDWLYH ,W LV ZRUWK QRWLFLQJ WKDW WKH H[SODQDWRU\ SRZHU YDULHV D ORW EHWZHHQ WKH SUH VHQWHG PRGHOV ,Q 0RGHO *D0 WKH 5 LV XQUHDOLVWLF KLJK ZKHQ , XVH 2/6 EXW IDOOV WR DQ UHDVRQDEOH OHYHO ZKHQ , XVH WKH +HFNPDQ &RUUHFWLRQ PHWKRG 0RGHO *E0 DQG *F0 KDYH ORZ 5 ZKLFK UHoHFWV WKDW P\ PRGHO LV QRW GRLQJ D JRRG MRE IRU WKH ZKROH VDPSOH RI nUPV :KHQ , VHOHFW ODUJHU nUPV WKDW SURYLGH PRUH LQIRUPDWLRQ *0RGHO *G00 5 LQFUHDVHV VLJQLnFDQWO\ ZKLFK PD\ EH D VLJQDO RI WKHVH nUPV EHLQJ PRUH SURnW RULHQWHG 7R FRQWURO WKH UREXVWQHVV RI WKH UHVXOWV , KDYH UHJUHVVHG D QXPEHU RI DOWHU QDWLYH PRGHO VSHFLnFDWLRQ , KDYH XVHG IRXU GLmHUHQW SHUIRUPDQFH PHDVXUHV WKH UDWLR RI SUH WD[ SURnW WR DVVHWV WKH UDWLR RI RSHUDWLQJ SURnW WR DVVHWV WKH UDWLR RI RSHUDWLQJ SURnW WR VDOHV DQG WKH UDWLR RI RSHUDWLQJ SURnW RI FDVK DGMXVWHG DVVHWV )RU HDFK RI WKHVH SHUIRUPDQFH PHDVXUHG , KDYH WHVWHG RQ WKH IROORZLQJ VDPSOHV DOO nUPV ZLWK RZQHUVKLS LQIRUPDWLRQ nUPV ZLWK XOWLPDWH RZQHUVKLS LQ IRUPDWLRQ nUPV ZLWK VDOHV ODUJHU WKDQ RQH PLOO '.5 DQG nUPV ZLWK PRUH WKDQ WZR XOWLPDWH RZQHUV 'XH WR GDWD OLPLWDWLRQV , KDYH QRW EHHQ DEOH WR DGG WR WKH H[SODQDWRU\ YDULDEOHV SUHVHQWHG LQ 7DEOH ,Q DOO WKHVH DOWHUQDWLYH UHJUHVVLRQV WKH ERDUG YDULDEOH HmHFW RQ SHUIRUPDQFH LV LQ JHQHUDO LQVLJQLnFDQW 7KH VLJQ LV LQ PRVW EXW QRW DOO FDVHV QHJDWLYH 7R VXP XS , FRQFOXGH WKDW ERDUGVB HmHFW RQ SHUIRUPDQFH RI VPDOO FORVHO\ KHOG FRUSRUDWLRQV LV LQVLJQLnFDQW , EHOLHYH WKH ODFN RI VWURQJ UHODWLRQVKLS EHWZHHQ ERDUGV DQG SHUIRUPDQFH VXSSRUWV WKH HTXLOLEULXP LQWHUSUHWDWLRQ GLVFXVVHG DERYH VLQFH nUPV FKRRVH WR HVWDEOLVK D ERDUG ZKHQ WKH EHQHnWV DUH ODUJHU WKDQ WKH FRVWV WKHUH LV LQ JHQHUDO OLWWOH PHDVXUDEOH HmHFW RI ERDUG HVWDEOLVKPHQW RQ WKH SHUIRUPDQFH LQ WKLV FURVVVHFWLRQDO GDWDVHW 'LVFXVVLRQ 7KH SUHYLRXV OLWHUDWXUH RQ ERDUGV KDV WDNHQ WKH H[LVWHQFH DQG WKH EDVLF UROH RI D ERDUG DV JLYHQ ,W DVVXPHV WKDW ERDUGV DUH LQ SODFH EHFDXVH FRUSRUDWH ODZ LQ JHQHUDO UHTXLUHV LW DQG WKH IXQGDPHQWDO UROH RI D ERDUG LV WR JRYHUQ WKH nUP E\ KLULQJ DQG PRQLWRULQJ WKH PDQDJHPHQW DQG E\ VHWWLQJ XS WKH RYHUDOO VWUDWHJLF JXLGHOLQHV IRU WKH PDQDJHPHQW 7KLV DSSURDFK LV XVHIXO WR VWXG\ WKH RSWLPDO VL]H FRPSRVLWLRQ DQG RUJDQL]DWLRQ RI D ERDUG EXW ZLWKLQ WKLV DSSURDFK LW PD\ EH GLpFXOW WR DQDO\]H WKH PRUH IXQGDPHQWDO TXHVWLRQ RI WKH RZQHUVB LQWHUHVW LQ HVWDEOLVKLQJ D ERDUG , KDYH VXJJHVWHG WKDW LQ DGGLWLRQ WR WKH JRYHUQDQFH PRWLYH WKHUH H[LVWV D GLVWULEXWLYH PRWLYH IRU ERDUG HVWDEOLVKPHQW QDPHO\ WKDW WKH UROH RI WKH ERDUG LV WR VHFXUH QRQFRQWUROOLQJ RZQHUV WKDW WKH\ DUH QRW H[SORLWHG E\ WKH FRQWUROOLQJ RZQHUV , LQYHVWLJDWHG WKLV PRWLYH LQ D VDPSOH RI FORVHO\ KHOG FRUSRUDWLRQV IRU ZKLFK ERDUG HVWDEOLVKPHQW LV YROXQWDU\ E\ ODZ , nQG VLJQLnFDQW HYLGHQFH IRU WKH GLVWULEXWLYH PRWLYH EHLQJ LPSRUWDQW ERWK LQ HVWDEOLVKLQJ DQG LQ GHFLGLQJ WKH FRPSRVLWLRQ RI D ERDUG , EHOLHYH WKHVH nQGLQJV DUH LPSRUWDQW EHFDXVH LW PD\ SODFH WKH GLVFXVVLRQ DERXW RSWLPDO ERDUG VWUXFWXUH LQ D VOLJKWO\ GLmHUHQW SHUVSHFWLYH 2ZQHUV GR QRW RQO\ VHOHFW ERDUG PHPEHUV WR LQFUHDVH WKH YDOXH RI WKH nUP EXW DOVR WR KDYH WKHLU RZQ DJHQWV SUHVHQW LQ WKH ERDUG URRP WR FRQWURO WKDW WKH\ UHFHLYH WKHLU SURPLVHG VKDUH RI WKH FRUSRUDWLRQBV UHWXUQ )RU LQVWDQFH WKLV PD\ H[SODLQ ZK\ nUPV KHVLWDWH WR LPSOHPHQW ERDUGV ZLWK PDQ\ RXWVLGHUV RU ZLWK D VPDOO QXPEHU RI PHPEHUV HYHQ LI VXFK FRPSRVLWLRQV DUH H[SHFWHG WR LQFUHDVH WKH SHUIRUPDQFH RI WKH nUP &ORVHO\ KHOG FRUSRUDWLRQV DUH LQ JHQHUDO EHOLHYHG WR EH RUJDQL]DWLRQV ZLWK OLPLWHG LQYHVWRU SURWHFWLRQ 7KLV PD\ EH RQH UHDVRQ IRU ZK\ WKH GLVWULEXWLYH ERDUG PRWLYH LV VWURQJ LQ P\ VDPSOH ,W LV DQ LQWHUHVWLQJ TXHVWLRQ LI WKH GLV WULEXWLYH PRWLYH LV DV VLJQLnFDQW LQ ODUJHU SXEOLF WUDGHG FRUSRUDWLRQV )ROORZLQJ -HQVHQ * 0 GLVFXVVLRQ RI H[WHUQDO DQG LQWHUQDO FRQWURO PHFKDQLVPV IRU SXEOLF WUDGHG n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nUP ZKLFK PLWLJDWHV WKH DJHQF\ SUREOHP SUHVHQW LQ SXEOLF WUDGHG FRUSRUDWLRQV ZLWK GLVSHUVHG RZQHUVKLS VWUXFWXUH 7KH\ FRQFOXGH WKDW ERDUGV LQ FORVHO\ KHOG FRUSRUDWLRQ WKHUHIRUH PRUH IUHTXHQWO\ ZLOO FRQVLVW RI H[SHUWV WKDW DUH FORVH WR WKH WRSPDQDJHPHQW RI WKH nUP +RZHYHU WKHLU DUJXPHQW IRFXVHV HQWLUHO\ RQ WKH DJHQF\ SUREOHP EHWZHHQ RZQHUV DQG PDQDJHPHQW DQG QRW RQ WKH GLVWULEXWLRQDO FRQoLFWV EHWZHHQ FRQWUROOLQJ DQG QRQFRQWUROOLQJ RZQHUV ,QYHVWRUV LQ SXEOLF WUDGHG FRUSRUDWLRQV DUH LQ JHQHUDO EHWWHU SURWHFWHG E\ ODZ DQG FRXUWURRP SUDFWLFH WKDQ LQYHVWRUV LQ FORVHO\ KHOG FRUSRUDWLRQV *VHH 2B1HDO * 00 $ JRRG OHJDO SURWHFWLRQ OLPLWV WKH FRQWUROOLQJ RZQHUV DELOLW\ WR H[SORLW WKH QRQFRQWUROOLQJ RZQHUV ZKLFK LPSOLHV WKDW WKH VLJQLnFDQFH RI WKH GLVWULEXWLYH PRWLYH IRU ERDUG HVWDEOLVKPHQW DQG ERDUG FRPSRVLWLRQ LV DmHFWHG E\ WKH GHJUHH RI LQYHVWRU SURWHFWLRQ ,W LV WKHUHIRUH SODXVLEOH WKDW LQFUHDVHG LQYHVWRU SURWHFWLRQ GHFUHDVHV WKH UHODWLYH LPSRUWDQFH RI WKH GLVWULEXWLYH ERDUG PRWLYH WKXV PDNLQJ ERDUGV PRUH IRFXVHG RQ JRYHUQDQFH ZKLFK VKRXOG KDYH D SRVLWLYH HmHFW RQ nUP YDOXH 7KLV LQWHUHVWLQJ UHODWLRQVKLS LV OHIW IRU IXWXUH UHVHDUFK Appendix: List of Variables: All ApS w. OI “Anpartsselskaber’’ with at least one stated owner. ApS w. UOI “Anpartsselskaber’’ with complete ultimate ownership information. Assets Book value of assets in mill. DKR. BoardXX Dummy, 1 iff the firm had a board in year XX. CD Dummy, 1 iff control is diluted in 1999, i.e. no owner owns 50 pct. or more of the firm. CEO Insider. Dummy, 1 iff the CEO is an owner of the firm. CEO share The ownership stake owned by the CEO. FAGE Firm age in years. Industry dummies Dummies for 1-digit industry codes. NO2 Dummy, # of ultimate owners = 2. NO3+ Dummy, # of ultimate owners ≥ 3. Sales Sales in mill. DKR. VAR 5 year variance on sales (1995-1999). Table 1: Company size and number of owners. This table shows the size and number of owners in the grand sample covering all firms with at least some ownership information (All ApS, w. OI) and in the sample of firms for which there is ultimate ownership information (ApS w. UOI). Panel A: Company size in 1999 in 1.000 DKR, measured by assets, equity and sales. Assets Equity Sales All ApS, w. OI Mean 5076 2422 6121 Median 1665 456 1091 N 23191 23191 7232 ApS w. UOI Mean 3833 1897 2977 Median 1701 465 1839 N 13357 13357 2751 With Board Mean 6690 3261 4155 Median 2629 860 1611 N 1746 1746 498 Without Board Mean 3403 1692 2721 Median 1604 444 1870 N 11611 11611 2293 Panel B: Number of owners in 1999. 1 2 3 4 5 6+ Total All ApS w. OI N 16390 4903 1196 467 132 103 23191 ApS w. UOI. N 11005 1823 372 112 32 13 13.357 Table 2: Boards frequency sorted by number of owners and control dilution. The top part of the table shows board frequency sorted by number of owners in the grand sample of all firms with some ownership information. The middle part shows board frequency sorted by number of ultimate owners in the sample of firms with ultimate ownership information. The final part shows board frequency sorted by number of ultimate owners and control dilution in the sample of firms with ultimate ownership information and three or more owners. Number of Owners Total 1 2 3 4 5 6+ All ApS w. OI Frequency 0.11 0.26 0.49 0.57 0.60 0.62 0.18 N 16390 4903 1196 467 132 103 23191 χ2-sig. = 0.00 ApS w. UOI. Frequency 0,10 0,21 0,45 0,53 0,47 0,69 0,47 N 11005 1823 372 112 32 13 13.357 χ2-sig. = 0.00 ApS w. UOI. & Frequency 0,49 0,55 0,52 0,69 0,51 control dilution. ApS w. UOI. & Frequency 0,36 0,44 0,20 n.a. 0,37 one dom. owner. N 372 112 32 13 529 χ2-sig. = 0.00 Table 3: Board frequency and CEO ownership. Panel A: Board frequency sorted by the CEO being an owner (insider) or not (outsider) in the sample of all firms with ownership information. Number of Owners 1 2 3 4 5 6+ CEO insider N insider CEO 12720 3677 847 294 90 59 N, with board 1336 814 394 156 48 37 Frequency 0.11 0.22 0.47 0.53 0.53 0.63 CEO outsider N outsider CEO 3670 1226 349 173 42 44 N, with board 522 461 198 112 31 27 Frequency 0.14 0.38 0.57 0.65 0.74 0.61 χ2-sig. = 0.00 Panel B: Board frequency sorted by the CEO being an owner (insider) or not (outsider) in the sample of firms with ultimate ownership information. Number of Owners 1 2 3 4 5 6+ CEO insider N insider CEO 8775 1526 303 77 22 9 N, with board 845 279 137 37 10 7 Frequency 0.10 0.18 0.45 0.48 0.45 0.78 CEO outsider N outsider CEO 2230 297 69 35 10 4 N, with board 275 96 31 22 5 2 Frequency 0.12 0.32 0.45 0.63 0.50 0.50 χ2-sig. = 0.00 Table 4: Logit-tests of Board Establishment. This table shows the result of logit regressions for the frequency of board establishment. Model 1, 3 and 5 use the sample of all firms with some ownership, whereas Model 2, 4 and 6 use the sample of firms for which there is ultimate ownership information for which the control dilution variable is defined. Model 1 and 2 use assets as size measure, whereas Model 3 to 6 use sales as size measure. In addition Model 5 and 6 also include the 5-year variance on sales as a noise measure. Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 NO=2 0.996 0.835 1.096 0.905 0.390 1.288 (0.042) (0.068) (0.076) (0.126) (0.142) (0.256) (***) (***) (***) (***) (***) (***) NO=3+ 2.098 1.610 2.176 1.520 1.148 1.759 (0.053) (0.179) (0.092) (0.326) (0.193) (0.592) (***) (***) (***) (***) (***) (***) ASSETS 0.017 0.026 (0.001) (0.003) (***) (***) ASSETS2 -1.01E-05 -4.86E-05 (1.12E-06) (1.02E-05) (***) (***) SALES 0.006 0.031 0.020 0.084 (0.001) (0.006) (0.022) (0.035) (***) (***) (**) SALES2 -3.61E-06 -1.25E-04 -5.54E-04 -0.001 (9.60E-07) (3.35E-05) (5.60E-04) (8.9E-04) (***) (***) VAR 8.62E-09 4.3E-04 (5.41E-09) (4.2E-04) VAR2 -1.10E-17 -2.0E-04 (6.59E-18) (4.1E-04) CD 0.616 0.459 0.745 (0.204) (0.373) (0.734) (***) CEO -0.516 -0.405 -0.523 -0.483 -0.181 -0.730 (0.041) (0.064) (0.071) (0.111) (0.139) (0.245) (***) (***) (***) (***) (***) FAGE 0.016 0.014 0.018 0.015 0.012 0.022 (0.002) (0.002) (0.003) (0.004) (0.006) (0.009) (***) (***) (***) (***) (*) (**) C -2.054 -2.437 -2.092 -2.556 -1.676 -2.839 (0.088) (0.151) (0.168) (0.317) (0.430) (0.659) (***) (***) (***) (***) (***) (***) Industry dummies YES YES YES YES YES YES Pseudo-R2 0.114 0.077 0.124 0.073 0.030 0.122 N 23188 13355 7233 4074 1805 1021 Note: (***) = significant at a 1 pct. level, (**) = significant at a 5 pct. level, (*) = significant at a 10 pct. level. Table 5: Cross-table for changes in board establishment between 1996 and 1999. Panel A: Cross-table for changes in board establishment. All firms, which were ApS in 1996 or 1999. - Board in 96 - Board in 96 + Board in 96 + Board in 96 - Board in 99 + Board in 99 - Board in 99 +Board in 99 Change in mean 969.4 3399.0 -147.2 1365.4 ASSETS. Change in median 119 1634 43 179 ASSETS. Change in mean -0.04 -0.01 -0.32 -0.07 number of ultimate owners. Change in median 0 0 0 0 number of ultimate owners. N 5531 162 142 869 Change in mean 138.5 2624.5 -1002.1 570.0 SALES. Change in median 34 590 -187 50 SALES. N 1684 32 35 255 Panel B: Cross-table for changes in board establishment. All firms, which were ApS in 1996 and 1999. - Board in 96 - Board in 96 + Board in 96 + Board in 96 - Board in 99 + Board in 99 - Board in 99 +Board in 99 Change in mean 693.9 2504.4 -365.5 1148.4 ASSETS. Change in median 116 844 -62 163 ASSETS. Change in mean -0.04 -0.02 -0.26 -0.07 number of ultimate owners. Change in median 0 0 0 0 number of ultimate owners. N 5468 51 138 794 Change in mean 130.5 2294.8 -1005.7 397.3 SALES. Change in median 34 259 -187 34 SALES. N 1663 14 33 231 Table 6: Fixed effect analysis. This table reports the results of a fixed effect (conditional logit) analysis for firms in 1996 and 1999. The endogenous variable is board establishment. Model 1, 3, 5 and 7 use the sample of all firms with some ownership, whereas Model 2, 4, 6 and 8 use the sample of firms for which there is ultimate ownership information. Model 1 to 4 use assets as size variable, whereas Model 5 to 8 use sales. Model 1, 2 , 5 and 6 use the CEO insider dummy as measure of CEO ownership, whereas Model 3, 4, 5 and 6 use the actual CEO ownership share. Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Number of 1.090 1.898 1.032 1.972 0.456 0.965 0.428 0.769 Owners (0.305) (0.534) (0.302) (0.545) (0.447) (0.862) (0.449) (0.854) (***) (***) (***) (***) ASSETS 3.57E-04 2.24E-04 3.54E-04 0.35E-03 (6.26E-05) (7.43E-05) (6.25E-05) (9.12E-05) (***) (***) (***) (***) SALES 2.18E-04 1.94E-04 2.17E-04 2.27E-04 (1.08E-04) (1.11E-04) (1.09E-04) (1.23E-04) (**) (*) (**) (*) CEO insider -0.284 -0.694 0.050 0.114 (0.241) (0.313) (0.464) (0.540) (**) CEO share -3.18E-03 -0.015 -2.01E-03 -0.014 (2.56E-03) (2.68E-03) (4.90E-03) (5.58E-03) (***) (***) Pseudo R2 0.193 0.162 0.193 0.296 0.096 0.098 0.098 0.215 N 604 372 604 372 138 100 138 100 (***) = significant at a 1 pct. level, (**) = significant at a 5 pct. level, (*) = significant at a 10 pct. level. Table 7: Board composition and CEO ownership in the ultimate ownership sample. Panel A: Board composition and CEO ownership in firms with two or more owners. One Owner (non- All (non-CEO) Ratio of (non- CEO) in Board Owners in CEO) Owners Board who are Board Members. CEO insider 385 301 numbers CEO insider 0.82 0.64 0.73 frequency N, total = 470 CEO outside 84 25 numbers CEO outside 0.54 0.16 0.37 frequency N, total = 156 2 χ -sig.: 0.00 0.00 0.00 Panel B: Board composition and CEO ownership in firms with three or more owners. One Owner (non- All (non-CEO) Ratio of (non- CEO) in Board Owners in CEO) Owners Board who are Board Members. CEO insider 177 104 numbers CEO insider 0.93 0.54 0.83 frequency N, total = 191 CEO outside 46 13 numbers CEO outside 0.77 0.22 0.37 frequency N, total = 60 χ2-sig.: 0.00 0.00 0.00 Table 8: Board composition and CEO ownership in the ultimate ownership sample. Panel A: Firms with 2 and more owners. The table shows regressions result for the determinants of non-CEO owners in the board in our sample firms with ultimate ownership and 2 or more owners. Model 1,2, 5 and 6 use the representation of one (non-CEO) owner in the board. Model 3,4, 7 and 8 use the share of non-CEO owners who are board members. CEO ownership is measured both as a dummy for the CEO being an owner or not and as the actual share of stocks possessed by the CEO. Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Logit Logit OLS OLS Logit Logit OLS OLS Endogenous One (non- One (non- Ratio of Ratio of One (non- One (non- Ratio of Ratio of variable: CEO) CEO) (non-CEO) (non-CEO) CEO) CEO) (non-CEO) (non-CEO) owner in owner in owners in owners in owner in owner in owners in owners in board. board. board. board. board. board. board. board. NO=3 0.931 1.010 2.368 2.380 0.521 0.590 1.799 1.794 (0.145) (0.148) (0.219) (0.223) (0.298) (0.303) (0.400) (0.406) (***) (***) (***) (***) (*) (*) (***) (***) NO=4+ 0.636 0.707 2.462 2.426 0.356 0.513 1.396 1.376 (0.229) (0.234) (0.323) (0.332) (0.480) (0.487) (0.608) (0.621) (***) (***) (***) (***) (**) (**) ASSETS 0.030 0.028 0.041 0.041 (8.78E-03) (8.64E-03) (9.28E-03) (9.29E-03) (***) (***) (***) (***) ASSETS2 -1.10E-04 -1.03E-04 -5.98E-05 -6.07E-05 (0.55E-04) (5.45E-05) (1.57E-05) (1.57E-05) (**) (*) (***) (***) SALES 1.15E-04 1.20E-04 1.43E-04 1.47E-04 (3.54E-05) (3.62E-05) (0.35E-04) (3.51E-05) (***) (***) (***) (***) SALES2 -1.94E-09 -2.06E-09 -1.58E-09 -1.61E-09 (9.74E-10) (1.02E-09) (4.44E-10) (4.45E-10) (**) (**) (***) (***) EQ/A -2.16E-05 -2.23E-05 -3.18E-05 -3.17 1.18E-06 -1.05E-07 6.25E-07 1.45E-06 (9.70E-06) (9.66E-06) (1.24E-05) (1.24E-05) (0.21E-04) (0.21E-04) (2.49E-05) (0.25E-04) (**) (**) (**) (**) CEO 1.134 0.570 1.278 0.500 (0.219) (0.209) (0.439) (0.363) (***) (***) (***) CEO-SHARE 9.45E-03 2.21E-03 8.62E-03 0.27E-03 (2.99E-06) (3.72E-03) (5.48E-03) (6.36E-03) (***) C -2.986 -2.393 2.056 2.436 -3.567 -2.845 1.579 1.492 (0.238) (0.182) (0.233) (0.221) (0.484) (0.357) (0.414) (0.394) (***) (***) (***) (***) (***) (***) (***) (***) Pseudo-R2 0.047 0.034 0.061 0.043 Adj- R2 0.072 0.069 0.053 0.050 N 2359 2359 2354 2354 658 658 657 657 Note: (***) = significant at a 1 pct. level, (**) = significant at a 5 pct. level, (*) = significant at a 10 pct. level Panel B: Firms with 3 and more owners. The table shows regressions result for the determinants of non-CEO owners in the board in our sample firms with ultimate ownership and 3 or more owners. Model 1,2, 5 and 6 use the representation of one (non-CEO) owner in the board. Model 3,4, 7 and 8 use the share of non-CEO owners who are board members. CEO ownership is measured both as a dummy for the CEO being an owner or not and as the actual share of stocks possessed by the CEO. Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Logit Logit OLS OLS Logit Logit OLS OLS Endogenous One (non- One (non- Ratio of Ratio of One (non- One (non- Ratio of Ratio of variable: CEO) CEO) (non-CEO) (non-CEO) CEO) CEO) (non-CEO) (non-CEO) owner in owner in owners in owners in owner in owner in owners in owners in board. board. board. board. board. board. board. board. NO=3 1.258 1.312 2.712 2.671 17.310 17.752 2.810 3.034 (1.073) (1.083) (1.973) (1.698) (0.536) (0.696) (2.552) (2.597) (***) (***) NO=4+ 0.962 0.971 2.795 2.633 17.212 17.796 2.628 2.911 (1.088) (1.107) (1.702) (1.743) (0.722) (2.604) (2.670) (***) ASSETS 0.092 0.094 0.190 0.199 (0.034) (0.033) (0.062) (0.063) (***) (***) (***) (***) ASSETS2 -1.89E-03 -1.92E-03 -2.77E-03 -2.98E-03 (8.66E-04) (8.39E-04) (1.26E-03) (1.26E-03) (**) (**) (**) (**) SALES 2.36E-04 2.41E-04 3.65E-04 3.83E-04 (1.32E-04) (1.31E-04) (1.41E-04) (1.42E-04) (*) (*) (**) (***) SALES2 -1.03E-08 -1.03E-08 -1.07E-08 -1.09E-08 (7.62E-09) (7.64E-09) (5.09E-09) (5.15E-09) (**) (**) EQ/A -6.02E-06 -8.06E-06 -2.56E-05 -2.83E-05 0.29E-04 2.53E-05 3.98E-05 4.39E-05 (1.68E-05) (1.66E-05) (3.18E-05) (3.19E-05 3.82E-05 (3.85E-05) (5.56E-05) (5.72E-05) CEO 0.937 1.110 2.156 1.519 (0.320) (0.502) (1.047) (0.842) (***) (**) (**) (*) CEO-SHARE 4.22E-03 8.41E-04 0.013 8.67E-03 (5.23E-03) (0.010) (0.011) (0.017) C -3.414 -2.794 0.838 1.755 -21.581 -20.571 -0.976 -4.35 (1.134) (1.136) (1.748) (1.789) (1.227) (2.597) (2.668) (***) (**) (*) (***) Pseudo-R2 0.041 0.024 0.110 0.064 Adj- R2 0.027 0.017 0.050 0.030 N 517 517 515 515 150 150 149 149 Note: (***) = significant at a 1 pct. level, (**) = significant at a 5 pct. level, (*) = significant at a 10 pct. level. Table 9: Test of performance effect of board establishment. The table presents the results from regressing the connection between performance and board estblishment. There are two differenct performance measures: pre-tax proffit / asset and operating profit / sales. Model (a) and (b) use the sample of all firms with ownership informations. Model (c) use the sample of firms with ultimate ownership and sales information. Model (d) is similar to (c) but use only large firms. Model (a) Model(b) Model(c) Model(d) Endogenous Variable: Pre Tax Proffit / OpP/SALES OpP/SALES OpP/SALES ASSETS Sample ApS w. OI and Sales ApS w. UOI and ApS w. UOI and All ApS w.OI inf. Sales inf. Sales inf. Sales>1mill.DKR. OLS Heckman OLS Heckman OLS Heckman OLS Heckman : Correction Correction Correction Correction Model Model Model Model C 2.277 -0.731 -3.521 -7.688 -1.538 -3.230 0.224 -0.062 (0,463) (0.087) (0.552) (1.590) (0.282) (0.711) (0.047) (0.167) (***) (***) (***) (***) (***) (***) (***) BOARD 0.084 -0.228 -0.009 0.022 (0.179) (0.230) (0.128) (0.011) (*) INVERSE MILLS 0.069 -0.387 0.073 -0.007 RATIO (0.030) (0.665) (0.257) (-0.034) (**) EQUITY/ASSETS 0.938 0.038 -0.016 -0.049 -0.006 0.467 0.071 0.135 (0.002) (0.005) (0.032) (0.071) (0.014) (0.163) (0.008) (0.040) (***) (***) (***) (***) (***) LOG(ASSETS) -0.410 0.085 (0.052) (0.007) (***) (***) LOG(1+SALES) 0.480 0.634 0.242 0.193 -0.017 -0.012 (0.056) (0.127) (0.028) (0.046) (0.004) 0.012 (***) (***) (***) (***) (***) Industry Dummies YES YES YES YES YES YES YES YES R-squared 0.88 0.06 0.01 0.03 0.03 0.08 0.10 0.12 Adj.R2 Adj.R2 Adj.R2 Adj.R2 Prob(F-statistic) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 No. of Observations 23082 23082 6772 6772 3830 3830 2112 2112 Note: (***) = significant at a 1 pct. level, (**) = significant at a 5 pct. level, (*) = significant at a 10 pct. level. 5HIHUHQFHV >@ $GDPV 5 % *0 ?7KH 'XDO 5ROH RI &RUSRUDWH %RDUGV DV $GYLVRUV DQG 0RQLWRUV RI 0DQDJHPHQW 7KHRU\ DQG (YLGHQFH :RUNLQJ 3DSHU )HGHUDO 5HVHUYH %DQN RI 1HZ