This piece reflects on the impact of Demsetz and Villalonga (2001) on the occasion of the paper receiving the Journal of Corporate Finance 25-Year Award.

I use the Business Information Tracking Series (BITS), a new census database that covers the whole U.S. economy at the establishment level, to examine whether the finding of a diversification discount is an artifact of segment data. BITS data allow me to construct business units that are more consistently and objectively defined than segments, and thus more comparable across firms. Using these data on a sample that yields a discount according to segment data, I find a diversification premium. The premium is robust to variations in the sample, business unit definition, and measures of excess value and diversification.

This paper investigates the relation between the ownership structure and the performance of corporations if ownership is made multi-dimensional and also is treated as an endogenous variable. To our knowledge, no prior study has treated the corporate control problem this way. We find no statistically significant relation between ownership structure and firm performance. This finding is consistent with the view that diffuse ownership, while it may exacerbate some agency problems, also yields compensating advantages that generally offset such problems. Consequently, for data that reflect market-mediated ownership structures, no systematic relation between ownership structure and firm performance is to be expected.

[In large U.S. corporations, founding families are the only blockholders whose control rights on average exceed their cash-flow rights. We analyze how they achieve this wedge, and at what cost. Indirect ownership through trusts, foundations, limited partnerships, and other corporations is prevalent but rarely creates a wedge (a pyramid). The primary sources of the wedge are dual-class stock, disproportionate board representation, and voting agreements. Each control-enhancing mechanism has a different impact on value. Our findings suggest that the potential agency conflict between large shareholders and public shareholders in the United States is as relevant as elsewhere in the world.]

Using proxy data on all Fortune-500 firms during 1994–2000, we find that family ownership creates value only when the founder serves as CEO of the family firm or as Chairman with a hired CEO. Dual share classes, pyramids, and voting agreements reduce the founder's premium. When descendants serve as CEOs, firm value is destroyed. Our findings suggest that the classic owner-manager conflict in nonfamily firms is more costly than the conflict between family and nonfamily shareholders in founder-CEO firms. However, the conflict between family and nonfamily shareholders in descendant-CEO firms is more costly than the owner-manager conflict in nonfamily firms.

In large U.S. corporations, founding families are the only blockholders whose control rights on average exceed their cash-flow rights. We analyze how they achieve this wedge, and at what cost. Indirect ownership through trusts, foundations, limited partnerships, and other corporations is prevalent but rarely creates a wedge (a pyramid). The primary sources of the wedge are dual-class stock, disproportionate board representation, and voting agreements. Each control-enhancing mechanism has a different impact on value. Our findings suggest that the potential agency conflict between large shareholders and public shareholders in the United States is as relevant as elsewhere in the world. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.

Using a sample of 3083 firms from 62 countries over 18 years, we analyze how the structure and identity of firms' material owners influence their Environmental, Social, and Governance (ESG) performance. We find that firms with founding families or other individual investors as owners underperform, unless family members serve as CEOs, when they outperform all others. Non-family management and government entities also perform significantly better in most analyses. These results are robust to multiple data and methodological stress tests. Our findings show that ownership matters for ESG performance and give us an indication of the preferences of different types of owners regarding ESG.

We investigate the role played by institutional development in the prevalence and performance of firms that are owned and/or managed by entrepreneurs or their families, while controlling for the potential effect of cultural norms. China provides a good research lab since it combines great heterogeneity in institutional development across its provinces with homogeneity in cultural norms, law, and regulation. Using hand-collected data from publicly listed Chinese firms, we find that, when institutional efficiency is high, entrepreneur- and family-controlled firms are more prevalent and exhibit superior performance than non-family firms. We find that the positive effects of family ownership and the negative effects of family control in excess of ownership that have been documented in earlier studies around the world are only significant in high-efficiency regions, and only for family-controlled firms proper, but not for entrepreneur-controlled firms. Institutional development also helps reconcile the divergence of results across prior studies regarding the performance impact of founders and their families as managers and not just owners. When institutional efficiency is high, the sign of the management effect is entirely contingent of whether the Chairman or CEO is the entrepreneur himself/herself (positive) or a family member (negative); when institutional efficiency is low, the effect is positive in both cases, and more strongly so in the case of a family member serving as CEO.