Links between company performance and ownership structures

AUTHOR: Lachlan Colquhoun   DATE: 13.04.06   ISSUE 1, 2006
Gloria Tian’s research has focussed on the link between ownership structures, corporate governance and financial performance of Canadian companies, and she is now looking forward to extending that research to Australia.

Dr. Tian recently commenced as a Senior Lecturer in Finance at AGSM and comes to the school after completing her PhD in Finance at the University of Alberta in Canada last year. Prior to that she gained her Bachelor of Economics, with a major in Finance, from Nankai University in the People’s Republic of China.

Her research in Canada began when a senior colleague asked for some information on the ownership and control structures of leading Canadian companies and her investigation revealed some surprising results.


Dr. Tian examines the implications of ownership structures on governance and performance.

Illustration: Gregory Baldwin

“In my mind I thought that most of the companies, especially in North America, should be widely held, but after I deconstructed some graphs I realised it wasn’t like that in Canada,” Dr. Tian said.

“So I started to look into the ownership structures of Canadian companies and realised that in Canada many companies are actually owned by significant shareholders – whether they be a family or another institution – so I thought it would be interesting to compare their performances to those of widely held firms to see if there were any differences and assess whether the differences were related to this ownership structure.”

In the collaborative paper, entitled “the Rise and Fall of the Widely held Firm – a History of Corporate Ownership in Canada,” Dr. Tian and three colleagues look at corporate ownership data stretching back to 1902.

They find that the twentieth century began with a predominance of large pyramidal corporate groups controlled by wealthy families or individuals. This evolved into a predominance of widely help firms by the middle of the century, but from the 1970s institutional factors were the catalyst for a resurgence of family and individual ownership.

Dr. Tian recently commenced as a Senior Lecturer in Finance at AGSM.
Photo: Dr. Gloria Tian

This paper has been published by the National Bureau of Economic Research (NBER), and a variation of the paper in the book, “Governance, Multinationals and Growth” by Edward Elgar Publishing.

In her own paper, entitled 'the Economic Importance of Corporate Control in Canada', Dr. Tian examines the implications of these ownership structures on governance and performance.

She examines organisations with pyramidal structures and finds that – although the statistical evidence is not very strong – they tend to deliver poor performance, particularly in those firms which are at the bottom of the pyramid.

She is interested in extending her work to the big picture of ownership structures.

In these firms, although ownership by the dominant group might be diluted, they often retain control and can disadvantage the firms to the advantage of others higher up in the structure.

“That is where the leverage or separation comes in and to me that is a negative influence,” says Dr. Tian.

“The people at the top, control these firms but they don’t have any ownership stake and they can operate to their private benefit.”

Dr. Tian’s research also identifies phenomena she calls “tunnelling,” where resources and capital are taken out of firms lower down in the pyramid to the advantage of those further up.

“Even if we cannot prove its existence from a statistical point of view, it is still a credible threat in these firms, and shareholders have to rely on the ethics of those running the company and that may not be good enough,” says Dr. Tian.

“So I don’t think that the pyramidal structure is a balanced one or is optimal in any way.”

Although she believes such structures are rare in Australia, she is interested in extending her work to the “big picture of ownership structures.”

“I’m interested in seeing how family and institutional ownership is reflected in the boards of directors of these companies, and also how it impacts on pay sensitivity on compensation packages, and on market responses to accounting information,” Dr. Tian says.

In addition to her teaching in the corporate finance area, Dr. Tian will be part of this year’s Corporate Governance IP course in April.

“I’m quite excited about this new environment (AGSM and Australia in general), and also switching from being a student to the other side of the table as a teacher,” she says.