Ownership structure and the likelihood of financial distress in the Netherlands

This article examines the impact of ownership structure on the likelihood of financial distress of Dutch firms listed on the Amsterdam Stock Exchange (Euronext) from 1992 to 2002. We find that firms with higher levels of managerial shareholdings are less likely to experience financial distress. This finding is consistent with the alignment hypothesis that managers with higher ownership stakes are more likely to avoid financial distress. We also find empirical evidence that large outside shareholders reduce the probability of financial distress. Monitoring incumbent management by large outside shareholders might prevent sub optimal managerial behaviour and reduce the likelihood of financial distress. Finally, we find no evidence that high levels of institutional shareholdings are associated with a lower probability of financial distress.