The effect on firm performance if the family loses majority or supermajority voting rights

Abstract

This paper uses a unique data set from Norway to investigate how firm performance is affected if the family decides to reduce their ownership stake below the majority, supermajority, or both voting thresholds. Our findings indicate that operating revenue is positively affected if the family reduces its ownership stake below both thresholds, however, higher operating revenue comes at the expense of lower firm profitability, measured by ROA and net income, in the year after the ownership change. We identify this relationship by applying two analysis methods: First, we perform univariate tests, which analyze the average yearly and industry adjusted firm performance in the year of the ownership change as well as in the two years before and after one or both voting thresholds has been crossed. Second, we run fixed-effects regressions to analyze the relation between firm performance and ownership changes further. In addition, we perform a logit, probit and hazard model to analyze whether ownership changes are driven by firm performance. However, the findings of these models do not support the hypothesis that weak firm performance is the main driver behind the family’s decision to reduce their ownership stake in the firm.