Disparity in the Impact of Insider Ownership on the Performance of Companies
Keywords:
Corporate governance, Efficiency and transparency, Insider ownership, Interests, StockholderAbstract
The ownership structure of companies is the most important part of corporate governance. The way different classes of owners act, the strategies they have come up with, and the results that have been achieved in a company have all been affected by ownership. The importance of corporate governance lies in safeguarding the interests of all stakeholders or a specific group of shareholders. People have been talking a lot about how important independent board members are for good corporate governance. Right now, it is very important for businesses and society as a whole to start working on changing how they run their businesses. The effect of higher levels of insider ownership is a positive impact on performance and commitment of corporations, but higher levels of insider ownership may also cause managers to act opportunistically and therefore create additional bond risk. When managers have some level of equity in a company’s stock, their own interests align with those of the company’s shareholders, or owners. The very high level of manager or insider ownership may offer a type of security for the management from any potential negative consequences in terms of their actions. This could create an environment in which management would make decisions on their own versus the other partners within that company, causing harm to the company’s performance. As the number of insiders continues to grow, it is expected to create less cost of borrowing due to a reduction in the amount of agency cost.
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