Agency costs of controlled ownership in transition: An empirical study of disproportionate ownership and controlling owners in Sweden during 1999-2007

Abstract: This thesis investigates the agency costs of controlling minority shareholders in Sweden during the period 1999-2007 with respect to the institutional changes under the stated period. A total data sample of 1 473 firm-year observations for 274 firms listed on the Stockholm Stock Exchange is utilised to determine the effect of controlling owners and disproportionate ownership on firm value, approximated by Tobin’s q. Our results from running pooled ordinary least-square regressions show that the agency costs associated with controlling minority shareholders have risen from approximately 17.5% to 20.0% of firm value during the past decade. However, when controlling for unobserved firm heterogeneity using a firm-fixed effect specification the impact of concentrated ownership and the prevalence of disproportionate ownership of firm value is insignificantly zero. This statistically insignificance in the results is not in line with prior research, suggesting there indeed has been a shift in the determinant factors of agency costs associated with controlling minority shareholders. Changes in the Swedish legislative environment as well as an increased transparency in the corporate setting are discussed as possible explanations of the observed phenomenon. Finally, we do not find any significant support for the conjecture that disproportionate ownership has an effect on firm value.