Long-Term Ownership by Industrial Foundations

Abstract

Short-termism has become a serious concern for corporate governance, and this has inspired a search for institutional arrangements to promote long-term decision-making. In this paper, we call attention to long-term ownership by industrial foundations, which is common in Northern Europe but little known in the rest of the world. We use a unique Danish data set to document that industrial foundations are long-term owners that practice long-term governance. We show that foundation ownership is highly stable compared to other ownership structures. Foundation-owned companies replace managers less frequently. They have conservative capital structures with low financial leverage. They score higher on an index of long-termism in finance, investment, and employment. They survive longer. Overall, our paper supports the hypothesis that corporate time horizons are influenced by ownership structures and particularly that industrial foundations possess characteristics that promote long-termism. Policymakers, business owners, and managers interested in promoting long-term governance models should therefore reconsider the role of ownership structure.