Academic journal article IUP Journal of Corporate Governance

Ownership Structure in Greece: Impact of Corporate Governance

Academic journal article IUP Journal of Corporate Governance

Ownership Structure in Greece: Impact of Corporate Governance

Article excerpt


Ownership structure has been a focal point for economists since the beginning of the industrial revolution. Berle and Means (1932) were the first to create a framework for the study of separation of ownership and control, which was later identified to create agency problem. Agency problem occurs when ownership is diffused. Principals (shareholders) want their capital and capital gains return to them. Agents (executive managers) control the firm and they have the real power over corporate assets. According to Gunther (2002) "a firm with a million shareholders does not have owners". It would not be cost-effective for the principals to monitor and control the executives.

When ownership concentration is high, the problem of corporate governance is different from the one described by Berle and Means (1932). Protection of minority shareholders from expropriation by the major shareholders is the main problem (La Porta et al., 1999; Bebchuk et al., 2000; Claessens et al., 2000; Maury and Pajuste, 2004; and Yeh and Woidtke, 2005). Shleifer and Vishny (1997) report a bizarre behavior of shareholders, who have assured ownership concentration beyond a threshold. These shareholders prefer to safeguard their dominant position, using entrenchment practices, than to gain some financial benefits. The main concern of potential shareholders is expropriation and capital reassurance (Leechor, 1999; and Maury and Pajuste, 2004).

Both minority shareholder expropriation and agency problem are present in all the firms and corporate governance systems. Only the mix and weight of these problems differs.

Demsetz and Villalonga (2001) argue that a Herfindahl index (the sum of equity holdings of the five biggest shareholders, while the second is square of the first) can depict the ability of major shareholders to monitor and control executives, while the percentage of equity holdings of executives depict their ability to ignore control. These quantitative measures cannot capture the full effect of some quality characteristics of ownership.

Ownership Concentration and Corporate Governance Systems

It is widely accepted that there are distinct corporate governance differences between countries. The basic differences are in orientation, ownership concentration and time horizon of economic relationships (Shleifer and Vishny, 1997). The differences are fundamental. The notion of family-owned firms is different in different groups of countries. Weimer and Pape (1999) have identified and ranked countries in different systems (Anglo- Saxon, Germanic, Latin and Japanese). Ali et al. (2007) suggested that family firms of the S&P 500 firms, on an average, own 11% of their firms, while in Continental Europe the ownership percentage is more than 35%. Franks et al. (2008) indicated that in UK, ownership concentration is 18%, while in Germany the percentage is 43% and in Italy it is 68%.

Many researches have identified that the differences in ownership concentration is the source of all other differences. Ownership dispersion in Anglo-Saxon countries specifies the corporate governance problem (Shleifer and Vishny, 1997). They define corporate governance as the mechanism with which the providers of capital assured themselves the return of their capital and capital gains. The need for this mechanism is based on the limited power and controlling capabilities of sporadic shareholder. It basically says that the alignment of interest between shareholders and managers is necessary. The incentive plans, monitoring and controlling mechanisms are adopted to achieve this alignment. Historically, the protection of dispersed shareholders' interest is greater in Anglo-Saxon countries. Legal, regulative and market mechanisms assure a higher level of protection of shareholder rights.

In Continental Europe, on the other hand, the problem of CG is very different. Protection of minority shareholders' rights is the primary problem, and agency problem becomes secondary. …

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