“Corporate Control around the World”, Aminadav, Gur, & Elias Papaioannou

Question 1

What is the main idea?

Answer 1

Describes differences and determinants of corporate control in different countries and firms;

Question 2

What is the methodology used?

Answer 2

Compare 2 approaches for determining corporate control:
1. Cutoff approach – corporate control if 1 shareholder with >20% voting power (controlling shareholder);
2. Game theory voting power index – using relative cutoffs (adjusted if multiple large shareholders with similar %)
Both methods highly correlated, so can use the simpler 1st approach.

Regression w binary var (controlled vs widely held), probit model, controlled by age, market cap, industry constants.

Accounts for share equity blocks by use of index.

Sensitivity analysis – Results are not sensitive to the method or sample.

Question 3

What is corporate control?

Answer 3

Ownership concentration / power of shareholders

Question 4

What determines corporate control?

Answer 4

Investor protection rights;
Legal origin;
State of the economy;
Shareholder protection;
Labor legislation

Question 5

How do they divide firms into 3 types?

Answer 5

Widely held corporations;
Widely held corporations with 1 or more equity blocks;
Controlled firms with a dominant shareholder (state-controlled, family, controlled by other firms)

Question 6

What is an equity block?

Answer 6

Shareholder with >5% voting rights, but who is not a controlling shareholder, they appear in over 80% of noncontrolled firms

In the cutoff approach, an equity block is 5–20%

Question 7

What are the challenges to analysing corporate control?

Answer 7

1. Sample size and composition (often large firms in a few countries, but they want many firms in many countries)
2. Heterogeneity (distribution of listed firms’ market cap. is leaning to one side, company size vary extensively, can’t put all firms in one pot)
3. Researchers face measurement challenges (many ppl own equity, hard to understand who has control, better to use voting rights not % ownership)

Question 8

How does ownership concentration differ among legal families?

Answer 8

French -> German -> Scandinavian (civil-law countries) have highest share of controlled firms, common law lowest

Same order applies for equity blocks’ commonality

Question 9

What are the findings?

Answer 9

Shareholder protection ↑ –> Dispersed ownership ↑ (no dominant shareholder, very strong link)

GDP per capita ↑ –> Dispersed ownership ↑ (only for large corporations, no effect for small/medium)

Labor protection ↑ –> Corporate control ↑

French -> German -> Scandinavian (civil-law countries) have highest share of controlled firms, common law lowest

Equity blocks are common, in more than 80% of noncontrolled firms (same order)

Creditor rights, entry barriers, legal formalism (time needed for court disputes) have low corr with CC