Financial Modelling: Determine how this information can be used to shed light on the impact of ownership structure on company performance

The assignment question is shown below. Course members will be assessed on their analysis, presentation and discussion as well as any calculations presented. Details of this submission will be conveyed to you by the Full Time Office.

Maximum length: 2000 words


Read carefully the case notes shown below. Also consider the information discussed in the appendix.

Determine how this information can be used to shed light on the impact of ownership structure on company performance.

Then write a report for JP Drew which addresses these issues.

Remember, the Directors of JP Drew are not experts in statistical analysis. Hence you will need to explain what you are and why, as well as the meaning of your results.

In structuring your report you may wish to consider the following framework. This does not mean that you simply respond to (a) to (d) below, but rather that you formulate headings and sub-headings for your report using the framework as a starting point.

(a) A graphical representation of the data and a discussion of any issues or patterns which arise from this exercise. It would be for you to decide upon the exact data to use and the appropriate graph(s). 

(b) Univariate and bivariate analysis and discussion which makes use of the data described in Appendix I.

(c) Multivariate analysis and associated discussion which makes use of the data described in Appendix I.

(d) Any other issues, problems or additional complications which you feel should be conveyed to the Directors of JP Drew with respect to your analysis.

Ownership Structure and Company Performance

You have recently been appointed as an analyst within PMC Inc. PMC is a UK consultancy company that undertakes independent research for client organisations.

Your first client is a large investment management firm (JP Drew) which provides advice and administrative services to both individuals and companies in relation to portfolio selection and specific asset purchase (stocks, bonds, etc.).

JP are interested in determining the impact which ownership structure has on company performance. In particular, the extent to which the separation of ownership and control provides opportunity for managers to undertake activities which negatively impact on performance and whether large shareholders can put pressure on managers to increase this performance.

You have been asked to undertake some quantitative analysis looking at this issue. While you are familiar with various different aspects of statistics and a number of statistical packages you have not undertaken a project of this nature before. Hence you start by conducting a literature search.

This search proves beneficial and you find that there are a number of existing studies which look at ownership structure and performance, although none specifically in a UK context.

In terms of theoretical work one of the overarching themes is that of the principal/agent problem. This suggests that the owners of a firm will want to pursue profit or value maximisation, but that on many occasions share ownership is so dispersed that the ability of shareholders to push managers in this direction is extremely limited. In contrast managers will have other objectives such as ‘empire building’ or a quest for higher salaries, with pursuit of these alternative objectives being possible (at the expense of profit) because control cannot be exerted by shareholders. This implies that in situations where share ownership is not dispersed and instead resides to a large extent in the hands of a single organisation or individual then it should be possible to force managers to pursue value maximisation. However, there is also the suggestion that some of the owners of a company may have objectives other than maximum value. 

In terms of empirical work there have been a number of studies which have attempted to look at the impact which ownership concentration (percentage shares of the largest owner) has on performance. Various measures of company performance have been used including accounting profit, market to book value and return on capital employed. In addition, some studies have looked at whether the identity of the largest owner (bank, institutional investor, etc.) has an effect on these performance measures. All such studies also contain ‘control variables’ which are likely to impact on company performance. The most frequently used of these is firm size. In addition, some studies have attempted to control for the industry in which the firms are located. 

From the material you have identified you draw up a list of variables which can be used to identify the impact, if any, of ownership structure on performance. You then collect numerical data on each of these variables (details of the data can be found in Appendix I).

You now need to consider how you will analyse this information. In addition you need to consider how you will explain the approach(es) you have adopted and the implication of your analysis given that the Directors of JP Drew are not experts in quantitative or statistical methods.

Appendix I

The data related to this assignment can be found in the file OS1.XLS on Blackboard. All data is annual. The file contains information on a large sample of medium and large sized firms. In total there are 500 observations, the first six of these are shown below. 

Variable definitions:

MBV: Market to book value.
Identity: Identity of the largest owner:
3 if bank,
4 if institutional investor,
5 if non-financial company,
6 if family or single person.
Con: Ownership concentration, percentage shares of the largest owner. 
Size: Total assets of company, £ million.
ROCE: Return on capital employed, percent.
Industry: Sector in which company operates:
1 if manufacturing,
2 if services,
3 if primary.

MBV Identity Con Size ROCE Industry
1.94 3 39.1 2173.07 23.4 2
2.22 3 36.3 1906.38 21.8 1
1.99 3 32.8 2604.02 12.4 1
2.10 3 32.3 2915.98 24.3 1
1.74 3 38.3 1968.31 16.7 3
1.77 3 30.6 1581.68 23.9 1


Criteria for a good assignment:
• good understanding of key concepts and ideas
• some imagination and originality
• development of argument so that the whole assignment hangs together.

When you write your assignment, consider the following:
• Before you begin, work out on paper a detailed outline of the structure of your assignment and the arguments you will develop. 
• In the introduction, you should set out your main themes and intentions: describe the issue you are addressing, identify its main components, and indicate what you are going to do in the body of your essay.
• Break down your arguments into main parts – use this as a basis of your assignment that will then be divided up into several sections (you may want to have section title for each section).
• Build up your argument point-by-point, section-by-section, so that you develop a picture that slowly develops in the reader’s mind.
• Always try to put yourself in the position of a critical reader, ask yourself how s/he would react to your assignment, how s/he would understand it, be persuaded by it.
• Do not simply describe the ideas you’re dealing with, provide a critical evaluation.
• Summarise your arguments in a conclusion. What is the main significance of what you have been saying?

Important points to note:
• You are required to provide explanation and discussion. Hence explain what you are doing, why, and the meaning of your results.
• Do not produce graphs if you cannot provide related discussion.
• Do not produce tables if you cannot provide related discussion.
• Do not cut and paste Excel, SPSS, etc. tables. Produce your own summary tables. If you think appropriate you can provide an appendix with the Excel, SPSS, etc. information.


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