Skip to main content
SpringerLink
Log in

Foundation Ownership and Financial Performance: Do Companies Need Owners?

  • Published:
European Journal of Law and Economics Aims and scope Submit manuscript

Abstract

A curious ownership structure is found in Northern Europe—foundations that own and operate business companies. The foundations are non-profit entities, they have no members and no owners, and they cannot be dissolved. In many cases, these entities control more than 50% of the votes in successful international companies. Obviously, this structure completely blocks the market for corporate control, but it also violates other basic principles of agency theory and corporate finance. Nevertheless, we present evidence that a sample of foundation-owned companies listed on the Copenhagen Stock Exchange are at least as efficient as other listed companies in terms of risk adjusted stock returns, accounting returns and Tobin’s Q. Thus, they question whether profit-seeking ownership is a necessary condition for competitive enterprise.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Alchian, A.A. (1950). “Uncertainty, Evolution and Economic Theory.” Journal of Political Economy. 58, 211–222.

    Google Scholar 

  • Alchian, A.A. & Demsetz, H. (1972). “Production, Information Costs and Economic Organization.” American Economic Review. 62(5), 777–795.

    Google Scholar 

  • Arrow, K.J. (1963). “Uncertainty and the Economics of Medical Care.” American Economic Review. 53(5), 941–973.

    Google Scholar 

  • Bolkestein Report. (2001). http://europa.eu.int/comm/internal_market/en/company/compan news/hlg01-2002.pdf.

  • Campbell, Lo & MacKinlay (1997).The Econometrics of Financial Markets. Princeton University Press.

  • Cho, M. (1998). “Ownership Structure, Investment, and The Corporate Value: An Empirical Analysis.” Journal of Financial Economics. 47(1), 103–121.

    Google Scholar 

  • Coase, R.H. (1960). “The Problem of Social Cost.” Journal of Law and Economics. 3, 1–44.

    Google Scholar 

  • Coase, R.H. (1972). “Industrial Organization: A Proposal for Research.” In V.R. Fuchs (ed.)Policy Issues and Research Opportunities in Industrial Organization. New York: National Bureau of Economic Research.

    Google Scholar 

  • Debreu, G. (1959).Theory of Value. New York: Wiley.

    Google Scholar 

  • Demsetz, H. (1983). “The Structure of Ownership and the Theory of the Firm.” Journal of Law and Economics. 26(2), 375–394.

    Google Scholar 

  • Demsetz, H. & Lehn, K. (1985). “The Structure of Corporate Ownership: Causes and Consequences.” Journal of Political Economy. 93(6), 1155–1177.

    Google Scholar 

  • Demsetz, H. & Villalonga, B. (2001). “Ownership Structure and Corporate Performance. Working Paper.” Social Science Research Network.

  • Dutta, P. & Radner, R. (1999). “Profit Maximization and the Market Selection Hypothesis.” Review of Economic Studies. 66(229), 769–798.

    Google Scholar 

  • Fama, E.F. (1980). “Agency Problems and the Theory of the Firm.” Journal of Political Economy. 88(2).

  • Fama, E.F. & Jensen, M.C. (1983a). “Separation of Ownership and Control.” Journal of Law and Economics. 26, 301–325.

    Google Scholar 

  • Fama, E.F. & Jensen, M.C. (1983b). “Agency Problems and Residual Claims.” Journal of Law and Economics. 327–349.

  • Fama, E.F. & Jensen, M.C. (1985). “Organizational Forms and Investment Decisions.” Journal of Financial Economics. 14, 101–119.

    Google Scholar 

  • Fama, E.F. & French, K.R. (1992). “The Cross-Section of Expected Stock Returns.” Journal of Finance. XLVII(2).

  • Friedman, M. (1953). “The Methodology of Positive Economics. Essays in Positive Economics.” Chicago: University of Chicago Press.

    Google Scholar 

  • Hansmann, H. (1980). “The Role of Nonprofit Enterprise.” The Yale Law Review. 89(5), 835–901.

    Google Scholar 

  • Hansmann, H. (1987). “Economic Theories of Nonprofit Organization.” In W.W. Powell (ed.)The Nonprofit Sector–-A Research Handbook. Yale University Press.

  • Hansmann, H. (1988).“Ownership of the Firm.” Journal of Law, Economics and Organization. (2), 267–305.

  • Hansmann, H. (1996).The Ownership of Enterprise. Cambridge, MA: The Belknap Press of Harvard University Press.

    Google Scholar 

  • Hart, O. (1988). “Incomplete Contracts and the Theory of the Firm.” Journal of Law, Economics and Organization. 4(1).

  • Glaeser, E.L. & Shleifer, A. (1998). “Not-For-Profit Entrepreneurs. Working Paper 6810.” National Bureau of Economic Research. Cambridge, MA.

  • Grossman, S.J. & Hart, O. (1986). “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration.” Journal of Political Economy. 94(4), 691–718.

    Google Scholar 

  • Hart, O. (1995).Firms, Contracts and Financial Structure. New York: Oxford University Press.

    Google Scholar 

  • Hammer-Jespersen, Lars. (2002). “The Foundation-Dominated Firm and the Chains of Charters.” (Den fondsdominerede virksomhed og den fundatsmæssige spændetrøje). Masters Thesis. Copenhagen Business School.

  • Herrmann, M. & Franke, G. (2002). “Performance and Policy of Foundation-Owned Firms in Germany.” European Financial Management, 2002, forthcoming.

  • Himmelberg, C.P., Hubbard, R.G. & Palia, D. (1999). “Understanding the Determinants of Managerial Ownership and the Link between Ownership Structure and Performance.” Journal of Financial Economics. 53(3), 353–384.

    Google Scholar 

  • Jensen, M. (1993). “The Modern Industrial Revolution, Exit and the Failure of Internal Control Systems.” The Journal of Finance. XLVIII (3), 831–880.

    Google Scholar 

  • Jensen, M. & Meckling, W. (1976). “Managerial Behaviour, Agency Costs an Ownership Structure.” First published in Journal of Financial Economics, October no. 3, 305–360.

  • Justitsministeriet (Ministery of Justice). (1982). Report on foundations (Betænkning om Fonde). Betænkning nr. 970. Copenhagen.

  • Kobbernagel, J. (1939). Båndlæggelse. Nyt Nordisk Forlag. København.

  • Kronke, H. (1988).Stiftungstypus und Unternehmensträgerstiftung. Tübingen: J.C.B. Mohr. 1988.

  • Large, O. & Taylor, F.M. 1938 (1964).On the Economic Theory of Socialism. New York: McGraw-Hill.

    Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A. & Vishny, R.W. (1998). “Law and Finance.” Journal of Political Economy. 106, 1113–1155.

    Google Scholar 

  • Loderer, C. & Martin, K. (1997). “Executive Stock Ownership and Performance.” Journal of Financial Economics. 45, 223–255.

    Google Scholar 

  • Lynge Andersen, L. et al. Foundations and Associations. (Fonde og Foreninger). Vol. I-II. G.E.C. Gad, Copenhagen.

  • Manne, H. (1965). “Some Theoretical Aspects of Share Voting.” Columbia Law Review. 64, 534–554.

    Google Scholar 

  • Milgrom, P. & Roberts, J. (1992).Economics, Organization and Management. Prentice-Hall International.

  • ørsted, A.S. (1801). “On the Right of Government to Abolish or Change Foundations which Private Men Have Established.” Published 1815 (in Danish) in Eunomia. 1, 1–25.

    Google Scholar 

  • Philomusus (Pseudodonym). (1771). On foundations (“Om Stiftelser). Cited in Justitsministeriet(1982).

  • Putterman, L. (1993). “Ownership and the Nature of the Firm.” Journal of Comparative Economics. 17, 243–263.

    Google Scholar 

  • Radner, Roy. (1998). Economic Survival, Nancy Schwartz Memorial Lecture, Northwestern University, 1996; reprinted in D.P. Jacobs, et al.,Frontiers of Research in Economic Theory. Cambridge: Cambridge University Press, pp. 183–209.

    Google Scholar 

  • Raewert, P. (1993). Vorbemerkungen zu § § 80 ff. Rdnr. 83 ff. In. Standinger. Kommentar zum Bürgerlichen Getsetzbuch. 13th edition.

  • Reuter. (2001). Vorbemerkungen zu § 80. Rdr 43 ff. Reibmann/Sächer. Eds. 2001. Münchener Kommentar zum Bürgerlichen Getsetzbuch. 4th edition.

  • Shleifer, A. & Vishny, R.W. (1997). “A Survey of Corporate Governance.” Journal of Finance. 52(2), 737–783.

    Google Scholar 

  • Stark, O. (1995) Altruism and Beyond: An Economic Analysis of Transfers and Exchanges within Families and Groups. Cambridge: Cambridge University Press.

    Google Scholar 

  • Stein, J. (1989). “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behaviour.” Quarterly Journal of Economics. 104(4), 655–669.

    Google Scholar 

  • Thomsen, S. (1996). “Foundation Ownership and Economic Performance.” Corporate Governance. 4(4).

  • Thomsen, S. (1999). “Corporate Ownership by Industrial Foundations.” The European Journal of Law and Economics. 7(2), 103–117.

    Google Scholar 

  • Tirole, J. (1992).The Theory of Industrial Organization, 5th edition. MIT Press.

  • White, Halbert, A (1980). “Heteroscedastic-Consistent Covariance Matrix Estimator and a Direct Test for Heteroscedasticity.” Econometrica. 48, 817–838.

    Google Scholar 

  • Williamson, O.E. (1996).The Mechanisms of Governance. New York: Oxford University Press.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of International Economics and Management, Copenhagen Business School, Howitzvej 60, 2000, Copenhagen F

    Steen Thomsen

  2. Centre for Financial Law, Copenhagen Business School, Solbjergvej 3, 1. sal, 2000, Copenhagen F

    Caspar Rose

Authors
  1. Steen Thomsen
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Caspar Rose
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Steen Thomsen.

Additional information

JEL Classification: D23, G34, L31

Rights and permissions

Reprints and permissions

About this article

Cite this article

Thomsen, S., Rose, C. Foundation Ownership and Financial Performance: Do Companies Need Owners?. Eur J Law Econ 18, 343–364 (2004). https://doi.org/10.1007/s10657-004-4277-y

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10657-004-4277-y

Keywords

Search

Navigation