13.11.2014 - Studies

It’s better to have the owner monitoring

by Philipp Immenkötter, Kai Lehmann


Owner-monitored companies from the DAX and MDAX generated an excess return of 5.9% p.a. in the period from 1994 to 2013. This development is based on long-term advantageous corporate control by intrinsically motivated owners and a stronger identity of interests between managers and owners. An efficient allocation of capital and a high solvency level will favour this development in the long term.

If an individual investor or a group of investors holds a significant portion of the voting rights or shares of a company over a long period of time and can thus steer the economic progress, this is referred to as an owner-controlled company. These investors can, for example, be the founding family, their heirs or a strategic investor. Since such an investor or owner has usually invested a significant part of his wealth in the company, he is intrinsically motivated to achieve a sustainable increase in the value of the company. Non-operating owners are engaged through supervisory boards through which they can determine the strategic direction of the company and effectively monitor its management. In the particular case where owners and managers are identical, strategic and operational decision-making powers are held by the same person, so that management and shareholder interests are aligned. Nevertheless, it is possible that the owner pursues personal goals that do not coincide with the interests of the other shareholders (monarchy risk). On the other hand, classic listed companies, with their often broadly diversified shareholder structure, run the risk of management being ineffectively supervised by non-intrinsically motivated supervisory bodies. This can lead to a variety of undesirable developments and thus to a divergence of management and shareholder interests (principal-agent problem).

Please note: This study is available in German only.

 

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