CORPORATE CONTROL AROUND THE WORLD Aminadav, Gur, and Elias Papaioannou, 2020

Question 1

CONTEXT

Answer 1

Aim: fix the empirical (data) problems and find (robust) correlation between corporate control and its
determinants.
Corporate control: ownership concentration/power of shareholders (important).
Corporate control determinants: investor protection rights, legal origin, state of the economy,
The problem with previous literature: reliance on strict definition – widely held corporations and
firms with a dominant shareholder; heterogeneity of firm size – small firms differ from mid-sized
firms that differ from large firms (big differences).

Question 2

DATA

Answer 2

Time period: 2004 – 2012
Controlled firms: one shareholder (state, family, other) has more than 20% voting rights
or if the shareholder fits their voting power index.
42 720 (public) firms from 127 countries
Types of firms: widely held corporations, widely held corporations with one or more
equity block/s (more than 5% of voting power), and controlled firms with a dominant
shareholder.

Question 3

FINDINGS - Legal Families

Answer 3

1. French civil law countries
   Most ownership concentration.
2. German and Scandinavian civil-law countries
   German civil-law countries take 2nd place and then come Scandinavian civil-law countries.
   All 3 show similar patterns in ownership concentration.
3. Common-law countries
   Lowest ownership concentration.

Question 4

FINDINGS – Equity blocks; legal protection; GDP

Answer 4

Equity blocks are present in >80% of non-controlled firms, consistent across regions. Share
of firms with widely held firms with blocks is highest in French civil-law countries and
lowest in common-law countries.
Shareholder protection rights (possibility to take legal action against managers who abuse
their position) are systematically linked with dispersed ownership.
Dispersed ownership correlates with GDP/capita (weak correlation). The correlations is
negative between income and corporate control is pronounced only for large corporations
(top 10%). Correlation = 0 for small and medium listed companies.

Question 5

FINDINGS – creditor rights; legal formalism; entry
barriers; labor regulation

Answer 5

Creditor rights have small and statistically insignificant correlation with corporate control.
Legal formalism (time needed for court disputes) weakly related to corporate control.
Entry barriers have low correlation with corporate control and ownership concentration.
Labor regulation and corporate control are strongly correlated. Labor legislation imposing
restrictions on overtime, firings and union membership power are relatively high in
countries with high percentage of corporate control. (Political theories of corporate control
say that labor laws has an effect on interaction between the controlling shareholders,
workers, and outside investors).

Question 6

REMARKS

Answer 6

1. Anatomy of corporate control
   - Families control firms in all countries.
   - State ownership is an important factor especially in some countries (Russia, China, Brazil, India).
2. Corporate control and legal origin
   - Ownership is more concentrated in French civil-law countries than in German civil-law countries. Same
   insight about equity blocks in widely-held companies, only that they are common across all countries.
   - Country development and corporate control correlate negatively only when examining large
   corporations.
3. Corporate control and individual characteristics
   - Weak minority shareholder protection results in fewer widely-held companies (and correlation in
   general). Creditor’s rights protection is uncorrelated and court efficiency is weakly correlated with
   ownership concentration.
   - Labor market institutions correlate with corporate control (labor-capital market spillovers).