An Investigation of the Performance of Luxury Firms in Europe from an Agency Theory Perspective

The luxury sector is one of the most significant segments of the economy. It is increasingly attracting the interest of investors given the high margins and growth that companies in this sector exhibit. What is the “secret” of this outstanding performance? Extant literature shows that firm-level strategies, i.e. marketing policies, supply-chain management, R&D investments, etc. are the keys to luxury company success. However, it neglected the investigation of ownership structure, in the context of the agency theory, as another determinant of company performance. This is an important gap since evidence indicates that ownership structure affects features that are crucial to the success of luxury firms. Accordingly, this paper uses a large panel dataset of luxury companies (1,153 unique firms and 8,253 firm-year observations) located in the European continent, OLS multivariate regression models with robust econometric features as well as a robustness test that controls for endogeneity and explores these firms from an agency theory perspective. It finds that luxury entities with higher ownership concentration perform better than the others. This relationship is stronger among non-EU member states and was not affected by the financial crisis. This investigation complements extant research on luxury companies showing that their governance does matter in explaining their success; thus it suggests to researchers of the luxury sector that the ownership structure of these entities cannot be ignored. The evidence reported in the paper helps owners and managers of luxury firms to detect potential agency issues and investors to spot features of highly profitable luxury firms