Extensiveness of Adoption of a Code of Good Governance: The Role of Ownership Concentration and Shareholder Heterogeneity

This paper addresses the extensiveness of adoption of the Swiss code of good governance in the presence of shareholder heterogeneity (i.e., both family and private equity ownership). The code represents a bundle of recommended mechanisms that companies could adopt or not without being legally forced. Theoretically, we build on recent developments in agency theory to address the influence that heterogeneous shareholders have in the adoption of governance mechanisms. We argue that ownership concentration leads to the adoption of fewer of the mechanisms proposed by the code. We further argue that the presence of heterogeneous shareholders mitigates the ‘principal-principal’ conflict and leads to the adoption of more of the proposed mechanisms. Our results show that ownership concentration negatively affects the extensiveness of adoption of the code but that shareholder heterogeneity has a positive effect. We find, moreover, positive interaction effects between ownership concentration of two types of large shareholders; however, these effects depend on how active the two large shareholders are