Ownership, Managerial Control and the Governance of Companies Listed on the Brussels Stock Exchange

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Abstract
This paper addresses the question of how corporate control is exerted in poorly performing listed companies in Belgium. We examine the efficiency of new regulations proposed in Belgium and the neighboring countries by studying whether the board's composition and structure is instrumental for adequate monitoring proxied by enforced management turnover. We find that in poorly performing companies with a high non- executive board representation, management is more frequently disciplined. The fact that the level of total concentrated cumulative ownership is positively related to board turnover when performance is poor supports the hypothesis that major shareholders will monitor the company if the free rider costs of control are low. Monitoring activity is related to the type of owner. The institutional shareholders are not actively involved with disciplining management whereas board turnover is positively correlated to the presence of substantial share stakes held by industrial companies, families and holding companies. We also examine the extent to which sales of stakes and changes in concentration of ownership are associated with poor performance. This market for share stakes might be an important complement to the 100% changes in ownership (the external market for corporate control). We identified high quality monitors as those shareholders who increase their ownership when performance is poor. Such shareholding increases are followed by management restructuring in order to allow management to improve performance.

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