The Causal Relationship Between Insider Ownership, Owner Identity, and Market Valuation Among the Largest European Companies

    Research output: Working paperResearch

    Abstract

    The causal relationship between insider ownership and market valuation is tested by simultaneous estimation of the causes and effect of insider ownership among the largest continental European companies. Controlling for nation and industry effects insider ownership (measured by the fraction of "closely held" shares) is found to have a positive effect on market valuation (market-to-book values). And market valuation is found to have a positive feedback effect on the level of insider ownership. The findings provide empirical support for a theoretical model proposed by La Porta et al (1999). But the results are also found to be sensitive to owner identity: while a higher level of financial and corporate insider ownership is found to increase market valuation, family ownership has no significant effect, and a higher level of government ownership is found to reduce market valuation.
    Original languageEnglish
    Place of PublicationFrederiksberg
    PublisherCopenhagen Business School, CBS
    Number of pages36
    Publication statusPublished - 2001
    SeriesWorking Paper / Department of International Economics and Management, Copenhagen Business School
    Number15-2001

    Cite this

    Pedersen, T., & Thomsen, S. (2001). The Causal Relationship Between Insider Ownership, Owner Identity, and Market Valuation Among the Largest European Companies. Frederiksberg: Copenhagen Business School, CBS. Working Paper / Department of International Economics and Management, Copenhagen Business School, No. 15-2001