Dominant stockownership and profitability

Abstract

Abstract Dominant stockholders can acquire variable amounts of control over a firm's performance. The amount of control depends largely on both the incentive and power to dominate the firm's decision‐making process. Ceteris paribus , a dominant stockholder has more incentive and power to influence firm behavior when he owns larger amounts of the firm's stock. To capture properly the effects of the separation of ownership and control this study considers a continuous relation between stockownership and control. This formulation allows for variable degrees of stockholder control, and suggests a critical minimum percentage of stockownership necessary for constraining managerial behavior.