Value creation through active and responsible ownership by state owners in publicly listed companies

Abstract

Several states around the world own shares in stock listed companies that have both public I and private shareholders. This study maps how states in the EU15 countries and Norway organize their ownership in stock listed companies, and examines how differing investment management practices affect on the one hand the valuation of the shares held, and on the other hand the employment practices and internationalization of the companies held. In this study, the population of public organizations that hold stock listed shares includes both governments that directly hold shares, and state-owned holding companies or similar organizations that hold stock listed shares.

The analysis is based on panel data from 2004 to 2009 of all stock listed companies in the EU15 countries and Norway. The data is both collected from databases, and from questionnaires sent to all public organizations that hold stock listed shares.

According to the analyses, state ownership of stock-listed shares is not significantly related to the valuation of the shares proxied by Tobin's Q. However, high powered incentives for the public investment managers, and autonomy from the government of the organization that hold stock listed shares, are both related to a higher value of Tobin's Q. On the contrary, a decision to divest all shareholdings in the foreseeable future is related to both a lower Tobin's Q and lower total shareholder return.

In addition, high powered incentives for the public investment managers is related to a larger reduction in the number of total employees, and high powered incentives and increased autonomy are related to a larger reduction in the number of domestically employed in the companies held during 2004-2009. In addition, companies held through public organizations other than governments export less than companies held directly by governments.

It is worth noting that although Significant, most of the above mentioned relations are not that robust for alternative model specifications. The results nevertheless indicate that autonomous shareholders with high powered incentives are associated with both the highest valuation, and with the highest propensity to reduce the number of employees both domestically and in total. Therefore, the principles governing the state shareholding entities seem to significantly affect the agency conflicts potentially present with public shareholders.

The results could partly explain why previous research on the effect of state ownership has arrived at different conclusions, and offer guidance for state shareholders on how to organize the ownership of stock listed shares.