Foundation Ownership and Firm Performance: Difference-in-Differences Estimation

Foundation ownership constitutes an enigma to economic theory. Having no persons as residual claimants, agency theory would expect the lack of profit-incentives for individuals to result in foundation-owned firms being poorly managed (Jensen and Meckling 1976, Fama and Jensen 1983). Specifically, agency theory would expect these firms to experience a proliferation of agency problems including managerialism, empire building, expenditure preference, entrenchment and so on. Contrary to this expectation, previous studies have found that foundation-owned firms apparently perform well without profit incentives (Thomsen 1996, Thomsen and Rose 2004, Hermann and Franke 2002). However, previous empirical studies have been cross-sectional and based on pooled regressions, which raise the issue of identification. In this paper, we address this gap in the literature by applying a more rigorous differences-in-differences methodology (dif-indif). Using ownership information from the Danish Business Authorities, we select a sample of 72 Danish companies that undergo treatment, i.e. change to foundation ownership in the period 20012011. All treatments in the sample have been validated manually by reading more than 1,600 annual reports of treatment firms, pre owner firms, and post owner firms and foundations. This has been done to ensure that each ownership change is in fact a real change in ownership type to a long termoriented foundation owner, that each company in the sample is a ‘real’ company with real operations both pre and post treatment, and to address a host of potential endogeneity issues. A control group is found through nearest neighbour propensity score matching on a vector of firmspecific variables, and consequently the dif-in-dif analysis is carried out on financial statement data for treatments and controls. Our results show that the treatment group does not under-perform the control group post treatment.