SHAREHOLDER COMPOSITION, CORPORATE GOVERNANCE AND THEIR MONITORING EFFECTS ON FIRM PERFORMANCE

The main goal of the paper is to understand if the shareholder composition must be considered as part of the corporate governance framework or as monitoring factor, only. A related goal of the paper is to investigate if the shareholder composition is part of the loop connecting corporate governance and corporate performance. We analyze a sample made of 10,520 firms over the years 2006-2015, in 8 European Countries having very differentiated governance frameworks, shareholder composition and corporate performance. Three variables related to the ownership structure were considered: (i) equity ratio; (ii) the percentage of institutional investors inside the ownership structure, and (iii) a C-3 index as a measure of ownership concentration explaining the actual influence of shareholders over the managerial decision. Seven indicators of the adopted corporate governance were sourced from ORBIS database and investigated as well. We find out that the two qualitative indicators of shareholder composition have significant impacts on the design of the corporate governance. On one side, they do not reinforce the relationships among corporate governance and corporate performance, therefore the economic incentives they generate is still opaque. On the other side, shareholder composition does reinforce the relationship between corporate governance and capital structure through its monitoring capabilities. The paper gives new insights to current debate on the relations between governance and performance as well as the one on the components of the corporate governance framework. According to our evidence, governance contributes to corporate value by reducing agency in funding, rather than having an impact over returns. Moreover, we give evidence that corporate governance should be considered as a tool contributing to the efficacy of monitoring capabilities of the shareholder composition of equity, but no clear evidence is about the composition of equity to be considered as part of the corporate governance framework.