LECTURE STOCK MARKET AND OWNERSHIP STRUCTURE

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LECTURE STOCK MARKET AND OWNERSHIP STRUCTURE
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OWNERS
STOCKMARKET, SHAREHOLDERS, DEBT SUPPLIERS, ...
ETC.
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SOCIALISATION OF OWNERSHIP
The Investor
The Investor
The Investor
Investment funds
The Stock Market
The Stock Market
The Firm
The Corporation
The Corporation
The firm
The firm
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THE CAPITAL SUPPLY OF THE FIRM AND ITS MAJOR
FINANCIAL STAKEHOLDERS
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STOCK MARKET FUNCTIONS

• PRICING OF ASSETS gt monitoring of firms
  capital allocation
• PROVIDING RISK CAPITAL, rationing capital
• ENCOURAGING RISK by investment diversification
  and rewarding profitable investments
• CORRECT MANAGERIAL FAILURE through market for
  corporate control
• CHANGE FIRMS because of differences between
  owners - would-be-owners information, theory,
  preferences

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CONTROL THROUGH CONCENTRATION

• Owner investment Capital Competence
• Investment gt Engagement
  (-free riding) Hold-up
• Reduction of hold-up gt Ownership
  concentration
• Ownership concentration gt minority
  exploitation

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THE MARKET FOR CORPORATE CONTROL

• Tradable right of control
• if Perfect market, Identical actors gt Value of
  control 0
• if
• costs for information
• costs for theories
• costs for competence
• preference differences
• gt Value of control gt 0

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THE SOCIAL ARENA FOR CORPORATE CONTROL

• NETWORKS OF CORPORATE POWER, I.E., BUSINESS
  GROUPS
• NEGOTIATIONS

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OWNERS
Interest - Strength of the Interest - Direction
of the Interest

• Capacity
• - Information
• Competence
• Governance Costs

?
?
OWNER 1
OWNER 2
CONFLICT
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THREE ECONOMIC SYSTEMS
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BUSINESS GROUPS

• Here and there, it is true, we have found
  islands of conscious power in this ocean of
  unconscious co-operation, like lumps of butter
  coagulating in a pail of buttermilk.
  (Robertsons 192385)

Business groups
?
Firms
Markets
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BUSINESS GROUPS DEFINED

• Business Groups are
• - legally independent firms
• - joined together by some mechanism, particularly
  by equity ownership, and
• - coordinating the use of one or more resources.

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THE WALLENBERG COUNTRY
Marcus 1864-1943
Marcus 1899-1982
Marcus 1956-
Peter 1926-
Knut 1853-1938
Jacob 1892-1980
Jacob 1956-
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SWEDISH BUSINESS GROUPS
2007/08
Investment corporations Investor
Investment corporations Industrivärden
Fonds and foundations
Fonds and foundations
Ericsson
SCA
SKF
Electrolux
ASEA
Volvo
ABB
AstraZeneca
Skanska
Atlas Copco
Munters
Gambro
SSAB
Mölnlycke
Sandvik
SE-Banken
Svenska Handelsbanken
Saab AB
Höganäs
Stora Enso
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FACTS ABOUT SWEDISH BUSINESS GROUPS
The Wallenberg group 35 of the value listed The
Handelsbank group 13 of the value
listed Financial corporations (banks,
foundations, investment corporations) in the
centre Industrial corporations in the
periphery International orientation, i.e.,
non-domestic sales 78 on average Internal
managerial labour market Cross-ownership or
foundations Interlocking directorates Political
representation No intra-trade Haus-Bank
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THE ORIGIN OF THE GROUPS
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FOUR HYPOTHESES EXPLAINING THE EXISTENCE OF
BUSINESS GROUPS
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FOUR HYPOTESES cont.
The institutional inertia hypothesis the groups
exist since they have accumulated so many
resources so they can survive independently of
their economic and political efficiency. The
cultural fit hypothesis the business groups
exist since they are very well fitted with the
Swedish culture of cooperation, modernism and
equality. The economic efficiency hypothesis
the organisational form of the business group is
a consequence of transaction cost minimisation
offering a solution to the corporate governance
difficulties connected with measuring and
monitoring resources of credit capital and
management labour. The political efficiency
hypothesis the business groups offer the
government manageability through their small
number of actors combined with their large
influence.
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H1 INSTITUTIONAL INERTIA
The institutional inertia hypothesis the groups
exist because of having accumulated so many
resources that they can survive independent of
their degree of economic and political
efficiency. . In favour HausBank Shielding of
competition Against Tremendous growth and
internationalisation of the industrial
corporations The dramatic reduction of the
influential family ownership during the last 30
years (except Rausing Kamprad Persson)
REJECT!
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H2 CULTURAL FIT
The cultural fit hypothesis the business groups
exist since they fit with the Swedish culture of
cooperation, modernism and equality
1500 1900 Small and homogenous
population Small and homogenous
population Strong property owning class of
peasants Strong labour movement Weak
aristocracy Weak aristocracy Strong
state Strong social democratic
state Corporativism Tight cooperation between
the state, the labour movement and the private
capital Consensus Flat organisations with small
differences between the worker and the boss.
Consensus and equality gt one single large
cooperative group, But competition between the
groups Consensus and equality gt randomly
structured groups But structured with financial
and industrial corporations REJECT!
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H3 ECONOMIC EFFICIENCY
The economic efficiency hypothesis The groups
exist because they provide a transaction cost's
minimisation solution to the corporate governance
difficulties of measuring and monitoring credit
capital and management labour. Limited supply of
credit managers due to monitoring and
measurement problems Solution Enclosure of the
resource, thus avoiding adverse selection and
utilising scale economies in monitoring Bank
(Hausbank) Building trust through signalling
(strategic information) Evidence Still
Hausbanks, despite debt finance through
markets Internal managerial labour market
(interlocking directorates) Long term gt
monitoring during extensive time Socialisation gt
preference conformity Risk diversification
through the group Evidence Heterogeneity in
financial and industrial experience, and
homogenisation triggering turn-over. Rotation
between group corporations gt Rotation between
non-group corporations. DO NOT REJECT!
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H4 POLITICAL EFFICIENCY
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WHY NOT ONE SINGLE GROUP?
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CONVERGENCE OR DIVERSITY?
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DIVERSITY
1989
2009
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EUROPEAN SYSTEM?

• Industrial owners
• supported by
• Financial capital, be it banks or investment
  funds
• Dependency for cooperation
• The board as a monitoring, decision making,
  service providing and conflict resolution
  mechanism
• Duty to perform, not piece wage

Business group capitalism