Ownership Concentration in Swedish Firms: How does it Affect Performance?

Wilhelm Samuelsson

Student thesis: Master thesis

Abstract

This thesis investigates how ownership concentration impacts share performance and firm performance in Sweden, comparing the effects in negatively trending markets with the effects in positively trending markets, adding to the large but dispersed corporate governance literature surrounding the subject. I have gathered information on the ownership structure of the firms listed on the Stockholm Stock Exchange and the NGM Nordic Stock Exchange as well as accounting and share returns from the Swedish stock market during the period 2008-2010 and used the Sharpe Ratio to test what effects different levels of ownership concentration, and different number of large owners have on share performance in Sweden. As an addition, I have also done the same testing with accounting returns measuring firm performance with the Return On Invested Capital (ROIC) measure in order to spot differences in share vs firm performance and provide potential explanations to similarities and differences, providing a larger analytical reference point for the thesis. The findings of this thesis indicate that share pricing in relation to ownership concentration is relatively rationally and efficiently done in Sweden as only two statistically significant differences are found in terms of different categories of ownership outperforming others. It was however found that investors seem to assume larger private benefit extraction from the largest shareholders within firms than is actually occurring when a negatively trending market turns positive. The notion of relatively efficient pricing is further strengthened as accounting performance is found to differ to a larger extent between ownership categories. Specifically, relatively clear evidence is found that a concentrated ownership structure outperforms a more spread ownership structure in 2009 and 2010 while no differences were found in 2008. As accounting returns had their low point in 2009, it signals that lower risk taking by firms with a more concentrated ownership structure paid off during this time period, while it does not seem to have hindered them into performing worse during 2008. Another potential explanation for the findings is that Sweden’s business environment is used to, and even favours, concentrated ownership, thus explaining why this thesis have found signs of a positive relationship between ownership concentration and firm performance while other scholars often argues that the reverse should be true in a European nation.

This thesis investigates how ownership concentration impacts share performance and firm performance in Sweden, comparing the effects in negatively trending markets with the effects in positively trending markets, adding to the large but dispersed corporate governance literature surrounding the subject. I have gathered information on the ownership structure of the firms listed on the Stockholm Stock Exchange and the NGM Nordic Stock Exchange as well as accounting and share returns from the Swedish stock market during the period 2008-2010 and used the Sharpe Ratio to test what effects different levels of ownership concentration, and different number of large owners have on share performance in Sweden. As an addition, I have also done the same testing with accounting returns measuring firm performance with the Return On Invested Capital (ROIC) measure in order to spot differences in share vs firm performance and provide potential explanations to similarities and differences, providing a larger analytical reference point for the thesis. The findings of this thesis indicate that share pricing in relation to ownership concentration is relatively rationally and efficiently done in Sweden as only two statistically significant differences are found in terms of different categories of ownership outperforming others. It was however found that investors seem to assume larger private benefit extraction from the largest shareholders within firms than is actually occurring when a negatively trending market turns positive. The notion of relatively efficient pricing is further strengthened as accounting performance is found to differ to a larger extent between ownership categories. Specifically, relatively clear evidence is found that a concentrated ownership structure outperforms a more spread ownership structure in 2009 and 2010 while no differences were found in 2008. As accounting returns had their low point in 2009, it signals that lower risk taking by firms with a more concentrated ownership structure paid off during this time period, while it does not seem to have hindered them into performing worse during 2008. Another potential explanation for the findings is that Sweden’s business environment is used to, and even favours, concentrated ownership, thus explaining why this thesis have found signs of a positive relationship between ownership concentration and firm performance while other scholars often argues that the reverse should be true in a European nation.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2016
Number of pages101