Literature on Family Ownership and Control

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Literature on Family Ownership and Control

• Winter 2008
• PhD Seminar on CG and Fin. Mkt. Dev.
• Boutchkova and Durnev

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Ownership Patterns the pioneers LLSV 1999 JF
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La Porta, Lopez-de-Silanes Shleifer JF 1999

• Show that the commonly taken for granted image of
  the Western Corporation is the widely-held firm
  of Berle and Means 1932
• Examine financial ownership structures in
  developed countries (widely-held vs. ultimate
  owner)
• How do ultimate owners maintain control
• Dual shares
• Pyramids
• Cross-holdings
• What determines ownership patterns?

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Some examples of less complex ownership and
control structures

• US Microsoft, 4th most valuable, Gates ultimate
  owner acc. to 20 and 10 cut-offs, no pyramids,
  no dual shares, no cross-holdings
• Canada Barrick Gold, 4th most valuable,
  widely-held acc. to 20 cut-off, Peter Munk
  ultimate owner, a pyramid acc. to 10 cut-off, no
  dual shares
• Hong Kong Hutchison Whampoa, 3th most valuable,
  Li Ka-Shing family ultimate owner, pyramid acc.
  to 20 and 10 cut-offs
• Japan Toyota Motor, 2nd most valuable,
  widely-held acc. to 20 cut-off, Mitsui Group
  ultimate owner, cross-holdings acc. to 10
  cut-off
• Korea Samsung Electronics, 2nd most valuable,
  widely-held acc. to 20 cut-off, Lee Kun-Hee
  ultimate owner, pyramid acc. to 10 cut-off

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Samsung Electronics
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Some examples of more complex ownership and
control structures

• Germany Allianz, most valuable, widely-held,
  cross-holdings
• Germany Daimler Benz, 4th most valuable,
  ultimate owner is Deutsche Bank, which is a
  widely-held fin. inst., cross-holdings
• Sweden ABB, 4th most valuable, Wellenberg
  Family ultimate owner, pyramid, cross-holdings
  and dual shares
• Italy Fiat, 3th most valuable, Giovanni Agnelli
  Family ultimate owner, pyramid, dual shares
• Belguim Electrabel, most valuable, treated as
  widely-held, but ultimately controlled by the
  Frere family

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Deimler Benz
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Electrabel
49.7 owned by Pergessa (Swiss),controlled by
Frere family
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Main results of widely-held firms
Dual shares, cross-holdings and pyramids
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Main Results

• Even in developed economies most firms have
  concentrated ownership.
• Cross-country differences in ownership structure
  are attributed to different level of investor
  protection (highly correlated with legal origin)
• Widely held (Berle Means) firms are more
  common under (British) Common Law, which gives
  better minority shareholder protection.
• Control of firms by financial institutions is
  also quite rare.
• Typically, states or families control large
  firms.
• Pyramid structures are also common.
• From Law and Finance recall that ownership is
  quite concentrated, and ownership in
  French-Origin countries (but not other Civil
  law countries) is more concentrated.

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Observations

• Why use 2 samples large and medium?
• The scarcity of widely-held firms, even in
  developed economies, suggests that there may be
  imperfections in financial markets.
• Specifically, agency problems may be making it
  difficult for minority shareholders to protect
  themselves from expropriation by majority (or
  controlling) shareholders.
• These are above and beyond the agency problems
  between owners and managers.

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Policy Implications

• Inefficient diversification for risk-averse
  agents. (hedging gold)
• Capital may be miss-allocated (small or medium
  size firms may find it difficult to sell shares).
• Corporate ownership structure may feed back into
  political decisions (crony capitalism), further
  aggravating capital miss-allocation.
• European Commission cannot pass reforms against
  the interests of controlling groups
• Why do controlling interest groups oppose
  improvement of minority shareholders rights?

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Other Studies on Ownership Patterns

• Lang, Claessens Djankov JFE 2000 East Asia
• Faccio Lang JFE 2002 Western Europe
• Holderness RFS forthcoming - US
• Gadhoum JMG 2006 - Canada

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FL Main results 20 cut-off
Dual shares, cross-holdings and pyramids
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Gadhoum JMG 2006 - Canada
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FL Ratio of Cash-flow and control rights
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Gadhoum JMG 2006 adds Canada summary of
above works