The ultimate ownership of Western European corporations☆
Introduction
Recent studies such as Shleifer and Vishny (1997), Claessens et al. (2000), and Holderness et al. (1999) suggest that Berle and Means’ (1932) model of widely dispersed corporate ownership is not common, even in developed countries. In fact, large shareholders control a significant number of firms in many countries, including developed ones. To examine ownership and control by large shareholders, La Porta et al. (1999) traced the control chains of a sample of 30 firms in each of 27 countries. They documented the ultimate controlling owners and how they achieved control rights in excess of their ownership rights through deviations from the one-share-one-vote rule, pyramiding, and cross-holdings. Claessens et al. (2000) carried out a similar task for 2,980 listed firms in nine East Asian countries including Hong Kong, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand. They found significant discrepancies between ultimate ownership and control, allowing a small number of families to control firms representing a large percentage of stock market capitalization.
This paper answers two questions. What is the structure of the ultimate ownership of Western European firms? What are the means by which owners gain control rights in excess of ownership rights? To answer these questions, we collect ultimate ownership data for a sample of 5,232 listed firms in Austria, Belgium, Finland, France, Germany, Ireland, Italy, Norway, Portugal, Spain, Sweden, Switzerland, and the UK. We include a large number of medium- and small-sized corporations, and we include both non financial and financial companies. We measure ownership and control in terms of cash-flow and voting rights. For example, if a family owns 25% of Firm X that owns 20% of Firm Y, then this family owns 5% of the cash-flow rights of Firm Y (the product of the ownership stakes along the chain) and controls 20% of Firm Y (the weakest link along the control chain).
Western European firms are most likely to be widely held (36.93%) or family controlled (44.29%). Widely held firms are especially important in the UK. and Ireland, while family control is more important in continental Europe. Widely held firms are more important for financial and large firms, while families are more important for non financial and small firms. In certain countries, widely held financial institutions also control a significant proportion of firms, especially financial firms. In some countries of continental Europe, the State also controls a significant proportion of firms, especially the largest. Widely held corporations control few firms.
We report the use of multiple classes of shares, pyramidal structures, holdings through multiple control chains, and cross-holdings, which are devices that give the controlling shareholders control rights in excess of their cash-flow rights. Pyramiding occurs when the controlling shareholder owns one corporation through another which he does not totally own. Firm Y is held through “multiple control chains” if it has an ultimate owner who controls it via a multitude of control chains, each of which includes at least 5% of the voting rights at each link. “Cross-holdings” means company Y directly or indirectly controls its own stocks. Dual class shares are used by few firms in Belgium, Portugal, and Spain, but by 66.07%, 51.17%, and 41.35% of firms in Sweden, Switzerland, and Italy. Pyramids and holdings through multiple control chains are used to control only 19.13% and 5.52% of listed firms respectively, being less important for family controlled firms and more important for firms controlled by the State and by widely held financial institutions. 53.99% of European firms have only one controlling owner. More than two-thirds of the family controlled firms have top managers from the controlling family. Overall, we find a substantial discrepancy between ownership and control in Belgium, Italy, Norway, Sweden, and Switzerland, but much less elsewhere.
Our results for the 20 largest firms differ slightly from those of La Porta et al. (1999), in that we find fewer State-controlled firms and more widely held firms, fewer pyramids, and more dual class shares. Compared to the findings of Claessens et al. (2000) for East Asia, we find that families control a higher proportion of firms; each family controls fewer firms on average; top families control a lower proportion of total stock market capitalization;1 a higher proportion of family controlled companies have family members in top management; and the largest shareholder is less often alone, but averages much higher cash-flow rights, control rights, and ratio of cash-flow to voting rights. These differences may be due to weaker law enforcement in Asia that allows controlling owners to achieve effective control of a large number of firms by controlling and owning a smaller part of each firm.
Section 2 describes the data. Section 3 discusses ultimate ownership patterns. Section 4 discusses the means whereby owners gain control rights in excess of ownership rights and Section 5 measures the extent to which this has been achieved. Section 6 presents conclusions.
Section snippets
Data
Some of the previous studies of corporate ownership and control, such as Lins and Servaes (1999a), Lins and Servaes (1999b), rely primarily on Worldscope. However, we find its coverage inadequate. For example, Worldscope includes only 176 of 632 Spanish listed firms at the end of 1997. In this case, we instead rely upon the Spanish Stock Exchange regulatory authority's files (Comision Nacional del Mercado de Valores, 1998) which provides quarterly information on all shareholders with at least
Ultimate ownership patterns
Table 3 analyzes the ultimate controlling owners of Western European corporations at the 20% threshold. In all countries, widely held and family controlled firms are the most important category. 36.93% of the firms in our sample are widely held and 44.29% are family controlled. However, there is a sharp cleavage between ownership patterns in continental Europe and in the UK and Ireland. Widely held firms comprise 63.08% of UK firms and 62.32% of Irish firms; in continental Europe the highest
Means of enhancing control
This section reports the major mechanisms used to enhance control. We neglect less significant mechanisms such as firm-specific voting caps,11
Discrepancy between ownership and control
Pyramids, holdings through multiple control chains, cross-holdings, and deviations from the one-share-one-vote rule all create discrepancies between ownership and control rights. Table 9 shows that, on average, the largest ultimate controlling shareholder owns 34.64% of cash-flow rights and 38.48% of voting rights. These averages are computed over firms where at least one owner owns at least 5% of the control rights. The largest ultimate owners average the highest cash-flow rights in Germany
Conclusion
In this paper, we document the ultimate ownership of 5,232 listed firms in 13 Western European countries. Widely held and family controlled firms predominate. Widely held firms are more important amongst financial and large firms, while families are more important for non financial and small firms. In some continental European countries, the State controls a significant number of larger firms. We also document the means whereby owners gain control rights in excess of their cash-flow rights. The
References (44)
- et al.
Private benefits from control of public corporations
Journal of Financial Economics
(1989) - et al.
The balance of power in closely held corporations
Journal of Financial Economics
(2000) - et al.
Ownership of equity in dual-class firms
Journal of Banking and Finance
(1990) - et al.
Risk capital financing and the separation of ownership and control in business groups
Journal of Banking and Finance
(1989) - et al.
The separation of ownership and control in East Asian corporations
Journal of Financial Economics
(2000) - et al.
Are liquidity and corporate control priced by shareholders? Empirical evidence from Swiss dual class shares
Journal of Corporate Finance
(1997) - et al.
The market value of control in publicly traded corporations
Journal of Financial Economics
(1983) - Barth, J.R., Caprio Jr., G., Levine, R., 2000. Banking systems around the globe: do regulation and ownership affect...
- Becht, M., Boehmer, E., 1998. Ownership and voting power in Germany. Unpublished working paper, European Corporate...
- et al.
The Modern Corporation and Private Property
(1932)
Cited by (2204)
Blockholder exit threats and excess executive perks
2024, International Review of Economics and FinanceBoard chair and credit rating of family firms: Evidence from China
2024, Pacific Basin Finance JournalMinority shareholders and tax avoidance
2024, Journal of Accounting and Public PolicyThe role of large shareholders in goodwill impairment decisions – Evidence from China
2024, Emerging Markets ReviewOwnership structure and carbon emissions reduction
2024, Pacific Basin Finance JournalIndustrial policy and governmental venture capital: Evidence from China
2024, Journal of Corporate Finance
- ☆
We are grateful to Marco Bigelli, Lorenzo Caprio, Edith Ginglinger, Arun Khanna, John McConnell, Stefano Mengoli, Robert Pye, Gordon Roberts, Bill Schwert (the editor), George Tian, and especially Andrei Shleifer and an anonymous referee for providing helpful comments. We benefited from comments from workshop participants at the National University of Singapore, Washington University at St Louis, the Capacity Building Seminar in Manila (sponsored by the Asian Development Bank), the European Financial Management Association meeting (Athens), the European Finance Association meeting (London), the Financial Management Association meeting (Seattle), and the Scottish Institute for Research in Investment and Finance (Edinburgh). We also thank Bolsa de Valores de Lisboa, Commerzbank, Helsinki Media Blue Book, Hugin, the Union Bank of Switzerland, and the Vienna Stock Exchange for generously providing us with their data sets. Mara Faccio acknowledges research support from Università Cattolica, Milan, and MURST (research grant #MM13572931). Larry Lang acknowledges research support from a Hong Kong Earmarked Grant.