Effects of Ownership Structure on Investment Behaviour and Their Relationship

By

ACKNOWLEDGEMENT

My thanks go out to all who have helped me complete this study and with whom this project may have not been possible. In particular, my gratitude goes out to friends, facilitator and family for extensive and helpful comments on early drafts. I am also deeply indebted to the authors who have shared my interest and preceded me. Their works provided me with a host of information to learn from and build upon, also served as examples to emulate.

DECLARATION

I, (Your name), would like to declare that all contents included in this thesis/dissertation stand for my individual work without any aid, and this thesis/dissertation has not been submitted for any examination at academic as well as professional level previously. It is also representing my very own views and not essentially which are associated with university.

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ABSTRACT

This research is an attempt to study effects that ownership structure has on the investment behaviour and the relationship that prevails between them. The separation of corporate ownership and control under agency theory is an issue of central importance to corporate finance (Clay, 2002). As noted earlier, agent theory is one mechanism of addressing the competing interests of owners and managers. The principal (owner) is characterised by its monitoring role and its ability to exert influence over the agent (manager). The owner typically owns a majority of the voting share and has the ability to make employment decisions and set incentives. This research study has adopted a secondary quantitative methodology for the meeting the purpose of this dissertation. For this research study, data has been collected for 10 years for the period of 2001-2011 of LSE 100 index. This research has incorporated the data of all the companies in the United Kingdom. Regression analysis has been used in order to assess the relationship between different variables. The variables that are used for this research are size of the ownership, capital expenditures and R&D investments and the size of the ownership. The results of the regression analysis depicted there is a significant effect that firm size and shareholdings of the insiders have on the investment behaviour of the 100 Index firm listed on the London stock exchange. The results of the regression shows that firm size and shareholdings of the insiders both have a positive impact on the investment behaviour. The managerial ownership, concentrated oqnership, insiders shareholding and the industry average all have a significant impact on the R&D expenditure and capital expenditures.

TABLE OF CONTENTS

ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

CHAPTER 01: INTRODUCTION1

1.1 Background of the Study1

1.2 Economy of United Kingdom3

1.3 Aim and Objectives5

1.4 Research Questions5

1.5 Significance of the Study5

1.6 Layout of the Study6

CHAPTER 02: LITERATURE REVIEW8

2.1 Introduction8

2.2 Overview of Corporate Ownership Structure8

2.3 Overview of the Investment Behaviour9

2.4 Agency Theory11

2.5 Firm Ownership Structure12

2.6 Institutional Ownership14

2.7 Variables that Influence Ownership Structure15

2.8 Ownership structure and Firm Value16

2.9 Institutional Ownership and Managerial Involvement19

2.10 Institutional Ownership, Firm Performance, and R&D Investment23

2.10.1 Capital Expenditures24

2.10.2 R&D Expenditures26

2.10.3 Shareholdings of the Insider27

2.10.4 Firm Size27

2.10.5 Managerial Ownership27

2.10.6 Concentrated ...