How Much Does Ownership Form Matter?
| DOI | http://doi.org/10.1002/smj.2671 |
| Author | Laszlo Tihanyi,Markus Fitza |
| Published date | 01 December 2017 |
| Date | 01 December 2017 |
Strategic Management Journal
Strat. Mgmt. J.,38: 2726–2743 (2017)
Published online EarlyView 12 July 2017 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2671
Received 5 May 2014;Final revision received5 April 2017
How Much Does Ownership Form Matter?
Markus Fitza1,2,*and Laszlo Tihanyi3
1Management Department, Frankfurt School of Finance & Management, Frankfurt
am Main, Germany
2Faculty of Business and Law, University of Newcastle, Callaghan, Australia
3Department of Management, Mays Business School, Texas A&M University,
College Station, Texas
Research summary: Previous studies have emphasized rm and industry effects on variation in
rm performance, but the relationshipbetween forms of ownership and rm performance has been
the focus of limited research.This article examines the extent to which ownership form (i.e., public
or private ownership) and ownership structure (including diffused ownership and blockholding)
affect rm performance. The results of an analysis of 30,525 EuropeanUnion (EU) rms indicate
that form of ownership is an important explanatory factor in the differencein performance among
rms. These results underscore the need to study rms characterized by different ownership
arrangements and to provide empirical evidence for the study of rm ownership in strategic
management.
Managerial summary: Motivated by growing evidence on the involvement of different types of
owners in the strategies of rms, we studied the extent to which a rm’s ownership form (type
of legal incorporation, such as public and private ownership forms) and ownership structure
(diffused ownership and blockholding) affectits performance. Our study of more than 30,000 rms
from the EuropeanUnion shows that ownership form differences explain some of the performance
differences between rms. Our results also indicate that rms with different ownership forms are
differently affected by their competitive environment. Overall, the study suggests that choosing the
right ownership form can have important strategic consequences. Copyright © 2017 John Wiley
& Sons, Ltd.
Introduction
But of course once you become a public
company, with a duty to update investors on
your nances every three months, that mission
thing becomes harder to sustain. Your ofces
may still be full of ping pong tables and
free food, but your tax planning department
is occupying a whole oor. (On Google’s
struggle to maintain its original mission after
becoming a public company
[Cellan-Jones, 2016])
Keywords: ownership form; private rms; variance
decomposition; rm effects; industry effects
*Correspondence to: Markus Fitza, Frankfurt School of Finance
& Management, Sonnemannstraße 9-11, 60314 Frankfurt am
Main, Germany. E-mail: m.tza@fs.de
Copyright © 2017 John Wiley & Sons, Ltd.
Researchers in the eld of strategic manage-
ment have long been interested in investigating the
source of performance difference across rms and
their populations (e.g., Hawawini, Subramanian, &
Verdin, 2003; McGahan & Porter, 2002; Misangyi,
Elms, Greckhamer, & LePine, 2006; Schmalensee,
1985; Short, Ketchen, Palmer, & Hult, 2007). Two
competing theoretical perspectives have driven this
literature— industrial organization (IO) economics
(e.g., Porter, 1980), and the resource-based view
(RBV) (e.g., Barney, 2001; Peteraf, 1993; Wern-
erfelt, 1984). Whereas the IO economics perspec-
tive suggests that factors external to a rm (such as
industry structure and competitive conditions) are
primary determinants of rm performance, propo-
nents of RBV argue that rm performance is mainly
established by factors internal to a rm, such as rm
resources and capabilities.
Does Ownership Form Matter? 2727
Studies from this stream of literature have
attempted to quantify the relative contributions to
rm performance by using variance decomposition
analyses (Brush & Bromiley,1999; Hawawini et al.,
2003; McGahan & Porter, 1997, 2002; Misangyi
et al., 2006; Roquebert, Andrisani, & Phillips, 1996;
Rumelt, 1991; Schmalensee, 1985). In recent years,
researchers have extended this work by evaluating
how additional factors, such as regional location, for
example, inuence rm performance (e.g., Chan,
Makino, & Isobe, 2010; Chang & Hong, 2002;
Fitza, Matusik, & Mosakowski, 2009; Ma, Tong,
& Fitza, 2013; Makino, Isobe, & Chan, 2004).
Despite the contributions of these studies, Fitza
et al. (2009) have noted that their insights are limited
to publicly listed rms. As a result, most studies in
this stream of research have assumed that ownership
form (i.e., publicly owned vs. privately held) and
structure (i.e., widely held or owned by large share-
holders, or blockholders) are external to perfor-
mance. However,there is growing evidence that dis-
tinct behavior and strategies of rm populations are
characterized by different ownership forms (Capron
& Shen, 2007; Durand & Vargas, 2003; George,
2005). Thus, any attempt to generalize ndings
about the determinants of public rm performance
to other populations such as private rms may lead
to erroneous conclusions. Extrapolating such nd-
ings to other populations has other far-reaching con-
sequences: Although public rms are important, in
many countries, they represent smaller rm popu-
lations. Indeed, McGahan and Porter (2002) have
suggested that “data on the protability of privately
held rms would provide results more representa-
tive of the entire economy” (2002, p. 849).
Thus, to examine to what degree ownership form
explains the variance in rm protability, we con-
duct a variance decomposition analysis of a com-
prehensive data set of 30,525 rms of differentown-
ership forms from the European Union. This study
makes two important contributions. First, our analy-
sis quanties the effects of ownership form relative
to industry effects and rm effects. This adds a crit-
ical new effect to the literature on the sources of
performance variation across rms, while contribut-
ing to the broader literature regarding the implica-
tions of ownership arrangement for rm strategy
and performance (Dharwadkar, Goranova,Brandes,
& Khan, 2008; Douma, George, & Kabir, 2006;
Hoskisson, Hitt, Johnson, & Grossman, 2002). In
addition, to our knowledge, this study is among the
rst to analyze the sources of rm performance in
a sample that includes both publicly listed and pri-
vately held rms. Our large sample of rms with
different ownership forms allows us to extend the
ndings of those studies of rm and industry effects,
which included only public rms.
Background
Studying the determinants of rm performance has
been among the most important research areas
since strategic management emerged as a distinct
eld. Past studies of the performance variances
among rms considered industry and rm effects,
employing explanations from IO economics and
the RBV (McGahan & Porter, 1997; Misangyi
et al., 2006; Rumelt, 1991). From the IO economics
perspective, rm protability is determined by the
conditions of the industry in which the rm operates
such as the degree of competition, and the level
of dependency on suppliers and customers, which
indicates the power these groups haveto appropriate
some of the value generated by rms (Caves, 1980;
McGahan & Porter, 2002; Porter, 1981). RBV
theorists argue that a rm’s protability is also
determined by internal factors, that is, a rm’s
resource endowment and its ability to use these
resources (Barney, 1991; Wernerfelt, 1984).
In 1985, Schmalensee contributed to this debate
by estimating what parts of the variance in rm per-
formance can be attributed to a rm’s industry and
what parts to the rm itself— in essence, asking
that if we want to understand the differences in rm
performance, how important is it to look at indus-
try and rm effects as drivers of such differences
(Schmalensee, 1985)? The study found an industry
effect of about 20%. Although this analysis did not
capture which specic features affect performance,
it found that industry, as a whole, to be important
in determining the differences in rm performance.
Following that work, Rumelt (1991) showed that
rm effects largely explain variance in rm per-
formance, followed by industry effects. McGahan
and Porter (1997) supported these results, nding
that industry effects account for 9.4% of the aggre-
gate variability in the performance of business units,
while corporate effects account for 9.1%, and busi-
ness unit effects account for 35.1%. Other studies
reported similar ndings (e.g., Brush & Bromiley,
1999; Hawawini et al., 2003; McGahan & Porter,
2002; Misangyi et al., 2006; Roquebert, Phillips, &
Westfall, 1996).
Copyright © 2017 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 2726–2743 (2017)
DOI: 10.1002/smj
To continue reading
Request your trial