Ownership Concentration and Corporate Performance on the Budapest Stock Exchange: Do Too Many Cooks Spoil the Goulash?*

Upjohn Institute Working Paper 03-93

John S. Earle, Senior Economist
W.E. Upjohn Institute for Employment Research
Central European University
e-mail: earle@upjohninstitute.org

Csaba Kucsera
Loránd Eötvös University Budapest and Central European University

Álmos Telegdy
Budapest University of Economic Sciences and Central European University

Revised: February 2004

JEL Classification Codes: G32, G34

Abstract
We examine the impact of ownership concentration on firm performance using panel data for firms listed on the Budapest Stock Exchange, where ownership tends to be highly concentrated and frequently involves multiple blocks. Fixed-effects estimates imply that the size of the largest block increases profitability and efficiency strongly and monotonically, but the effects of total blockholdings are much smaller and statistically insignificant. Controlling for the size of the largest block, point estimates of the marginal effects of additional blocks are negative. The results suggest that the marginal costs of concentration may outweigh the benefits when the increased concentration involves "too many cooks."
NOTE: A revised version of this paper appears in Corporate Governance, Vol. 13(2), 1-11, March 2005.
* This research was supported by a CEU Faculty Research Grant. Earlier data collection was funded by the European Unionís Phare ACE Program 1998. Collaboration was facilitated by travel support from a USAID Think Tank Partnership Grant, administered by IRIS and Bearing Point. We also thank Michael Barclay, Mike Burkart, Joanne Lowery, and two referees for helpful comments.

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