ESSAYS ON OWNERSHIP STRUCTURE AND FIRM PERFORMANCE

Abstract

This dissertation studies the relationship between firm ownership structures and performance. In the first chapter I document the subsidiary ownership structure of firms using a unique dataset, which I apply to the question of what determines the internal organization of firms. I refer to “ownership structure” as it relates to the linkages between multinationals and their subsidiaries: “firms owning firms.” This dataset is novel in its comprehensive map of the global network structure of ownership across firms in different countries and industries, allowing for the description of both the evolution of ownership structures over time and complex ownership structures, such as indirect ownership, ownership chains, and fractional ownership. I document the anatomy of ownership structure for a panel of European plastics manufacturers, providing descriptive and reduced-form evidence on observed ownership patterns and their determinants. I find that while most firms have a simple ownership structure, firms with relatively complex ownership structure are becoming more complex over time. I then apply my data to two approaches in the literature for explaining ownership structure.

The second chapter takes a first step toward addressing the question of whether features of ownership structure have implications for real economic output by studying how changes in ownership structure impact productivity. I pair ownership data with detailed balance sheet and income statement data for European primary plastics manufacturers in order to estimate firm productivity. I build on the stylized fact documented in Braguinsky et al. (2015) that manufacturing firms which experience a change in ownership become more productive after the ownership change, and I investigate the extent to which this effect varies with complex features of ownership structure. I show that direct ownership changes (in which a firm gets a new direct controlling shareholder) have a larger impact on productivity than indirect ownership changes (in which the global owner of a firm changes, but the direct owner does not). I also provide reduced-form evidence that the increase in productivity from a direct ownership change is larger when the new controlling shareholder takes a majority share of voting rights than when the new controlling shareholder acquires only a minority share. The results suggest a role for complex ownership structures in determining real economic outcomes, and they imply the need for a full model of the ownership structure decision of the multinational firm.

The third chapter studies the relationship between firm-level financial constraints and total factor productivity, through the lens of acquisitions. Recent work by Erel, Jang, and Weisbach (2015) documents that acquisitions appear to relieve the financial constraints of target firms. I extend this line of inquiry by linking firm-level measures of financial constraints to firm performance in the post-acquisition period. I set out to answer two questions. First, does the financial health of the acquirer or target at the time of acquisition have implications for post-acquisition performance of the target? Second, do acquisitions and the market for corporate assets more generally play a role in addressing misallocation of capital? Using a panel of European manufacturing firms with yearly financial, production, and ownership data, I apply standard approaches from the corporate finance literature to show that acquired firms that appear financially constrained tend to exhibit larger increases in productivity than firms that do not appear financially constrained. I also show that firms that appear financially constrained are more likely to be acquired. These results are suggestive of a theory of financing efficiencies as a source of gains from mergers and acquisitions.