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Abstract:
We analyze the simultaneous relationship between managerial ownership, board structure, and firm value, using a sample of all UK non-financial listed companies. We test the hypothesis that managers in the UK should become entrenched at a higher level of ownership compared to their US counterparts because of institutional differences across the two markets. We find a strong U-shaped relationship between the level of managerial ownership and the probability that the roles of chairman and CEO are split, that a non-executive director is appointed as chairman, and the proportion of non-executive directors on the board. However, we report a generally weak relationship between firm value and managerial ownership, board structure and the combination of managerial ownership and board structure. Our results cast doubt on the effectiveness of these internal corporate governance mechanisms.

Abstract:
We analyze the ultimate ownership and control of 5,232 corporations in 13 Western European countries. Firms are typically widely held (36.93 percent) or family controlled (44.29 percent). Widely-held firms are more important in the U.K. and Ireland, family-controlled firms in continental Europe. Financial and large firms are more likely to be widely-held, while non-financial and small firms are more likely to be family-controlled. State control is important for larger firms in certain countries. Dual class shares and pyramids are used to enhance the control of the largest shareholders, but overall there are significant discrepancies between ownership and control in only a few countries.

Ownership, Corporate Governance

Abstract:
We analyze the ultimate ownership and control of 5,232 corporations in 13 Western European countries. Firms are typically widely held (36.93 percent) or family controlled (44.29 percent). Widely-held firms are more important in the U.K. and Ireland, family-controlled firms in continental Europe. Financial and large firms are more likely to be widely-held, while non-financial and small firms are more likely to be family-controlled. State control is important for larger firms in certain countries. Dual class shares and pyramids are used to enhance the control of the largest shareholders, but overall there are significant discrepancies between ownership and control in only a few countries.

Ownership, Corporate Governance

Abstract:
We analyze the ultimate ownership and control of 3,740 corporations in five Western European countries. We document that families are the most pronounced type of controlling shareholders in Western Europe. In fact, they control 43.9 percent of Western European firms. We also document a significant concentration of wealth within a small number of families. We report that, in Western Europe, pyramids and cross-holdings are used to gain control, and hence a significant separation of ownership from control is achieved but not to the benefit of controlling owners.

Abstract:
We regress leverage on an index of corporate exposure to expropriation by the controlling shareholder - the ratio of his ownership rights O to his control rights C - and on an index of creditor rights. Amongst corporations that can access related party loans, a lower O/C ratio increases leverage when creditor protection is weak; but reduces leverage where creditor protection is strong. In the first case, higher leverage gives the controlling shareholder control of more resources to expropriate. In the second case, minority shareholders and external lenders constrain the leverage of group affiliates that seemed more vulnerable to expropriation.

Debt, corporate governance, business groups, expropriation

Abstract:
Whereas most US corporations are widely-held, the predominant form of ownership in East Asia is control by a family, which often supplies a top manager. These features of "crony capitalism" are actually more pronounced in Western Europe. In both regions, the salient agency problem is expropriation of outside shareholders by controlling shareholders. Dividends provide evidence on this. Group-affiliated corporations in Europe pay higher dividends than in Asia, dampening insider expropriation. Dividend rates are higher in Europe, but lower in Asia, when there are multiple large shareholders, suggesting that they dampen expropriation in Europe, but exacerbate it in Asia.

Abstract:
In Western Europe and East Asia, capital markets require higher dividends from corporations tightly affiliated (at the 20% level of control) to a group and, within a group, from corporations whose controlling shareholder has a lower ratio O/C of ownership to control rights. For loosely-affiliated corporations (whose controlling shareholder holds between 10% and 20% of control rights), dividends are positively related to O/C, reflecting expropriation not contained by capital markets. Such corporations comprise 2.94% of European corporations, but 15.44 % of Asian corporations. In our 9 Asian economies, the 11 largest groups at the 10% level comprise 53.75% of all corporations and 84.58% of loosely-affiliated corporations, so most expropriation occurs here. Dividend are higher in Europe than in Asia; having multiple large shareholders increases dividends in Europe but decreases them in Asia.

Abstract:
Examination of firms in 47 countries shows a widespread overlap of controlling shareholders and top officers who are connected with national parliaments or governments, particularly in countries with higher levels of corruption, with barriers to foreign investment, and with more transparent systems. Connections are diminished when regulations set more limits on official behavior. Additionally, I show that the announcement of a new political connection results in a significant increase in value.

Abstract:
We study the change in government control of privatized firms in OECD (Organisation for Economic Co-operation and Development) countries. At the end of 2000, after the largest privatization wave in history, governments retained control of 62.4% of privatized firms. In civil law countries, governments tend to retain large ownership positions, whereas in common law countries they typically use golden shares. When we combine these two mechanisms, we find no association between a country's legal tradition and the extent of government control. Rather, we document more prevalent government influence over privatized firms in countries with proportional electoral rules and with a centralized system of political authority.

D72, G15, H6, K22, L33

Abstract:
We study the change in government control of privatized firms in OECD countries. Results indicate that governments typically transfer ownership rights without relinquishing proportional control. Control is commonly retained by leveraging state investments through pyramids, dual-class shares, and golden shares. Indeed, at the end of 2000, after the largest privatization wave in history, governments retain control of 62.4% of privatized firms. In civil law countries, governments tend to retain large ownership positions, whereas in common law countries they typically use golden shares. However, when we combine these two mechanisms, we find no association between a country's legal tradition and the extent of government control. Rather, we document more prevalent government influence over privatized firms in countries with proportional electoral rules and with a centralized system of political authority.

Privatization, Corporate Governance

Abstract:
We study merger and acquisition (M&A) payment choices of European bidders for publicly and privately held targets in the 1997-2000 period. Europe is an ideal venue for studying the importance of corporate governance in making M&A payment choices, given the large number of closely held firms, and the wide range of capital markets, institutional settings, laws and regulations. The tradeoff between corporate governance concerns and debt financing constraints is found to have a large bearing on the bidder's payment choice. Consistent with earlier evidence, we find that several deal and target characteristics significantly affect the method of payment choice.

Corporate finance, Corporate Governance, M&As

Abstract:
We document that the quality of earnings reported by politically connected firms is significantly poorer than that of similar non-connected companies. Moreover, we find that earnings quality has no predictive power for the likelihood of establishing connections. Hence, we rule out that our results (on average) are simply due to firms with ex-ante poor earnings quality establishing connections more often. Instead, our results suggest that, because of a lesser need to respond to market pressures to increase the quality of information, connected companies can afford disclosing lower quality accounting information. In particular, lower quality reported earnings is associated with a higher cost of debt only for the non-politically connected firms in the sample.

Political connections, information quality, accruals quality

Abstract:
We analyze the likelihood of government bailouts of a sample of 450 politically-connected (but publicly-traded) firms from 35 countries over the period 1997 through 2002. We find that politically-connected firms are significantly more likely to be bailed out than similar non-connected firms. Additionally, politically-connected firms are disproportionately more likely to be bailed out when the IMF or World Bank provide financial assistance to the firm's home country. Further, among firms that are bailed out, those that are politically-connected exhibit significantly worse financial performance than their non-connected peers at the time of the bailout and over the following two years. This evidence suggests that, at least in some countries, political connections influence the allocation of capital through the mechanism of financial assistance when connected companies confront economic distress. It may also explain prior findings that politically-connected firms borrow more than their non-connected peers.

Political connections, cronism, bailouts

Abstract:
Evidence from firms in 47 countries shows that companies with political connections have higher leverage and higher market shares, but they underperform compared to non-connected companies on an accounting basis. Differences between connected and unconnected firms are more pronounced when political links are stronger. Differences also vary depending on the level of corruption and the degree of economic development in individual countries.

Political connections, leverage, benefits

Abstract:
For a sample of 42 countries, I examine firms whose controlling shareholders and top managers are members of national parliaments or governments. I find that this overlap is quite widespread, especially in highly corrupted countries. Connected companies enjoy easier access to debt financing, lower taxation, and stronger market power. These benefits increase when companies are connected through their owner, with a minister, or a seasoned politician. Furthermore, these benefits are generally larger when the firm operates in a country with high corruption, low protection of property rights, a highly interventionist government, or a non-democratic government. Even though these connections provide significant benefits, connected firms under-perform their peers on an ex-ante basis. Therefore connections, by driving benefits to relatively poorly performing firms, distort the allocation of funds and investment decisions.

Politican connections, ownership structure, board structure

Abstract:
Many firms voluntarily incur the costs of attempting to influence politicians. However, estimates of the value of political connections have been made in only a few extreme cases. We propose a new approach to valuing political ties that builds on these previous studies. We consider connected to a politician all companies headquartered in the politician's home town, and use an event study approach to value these ties at their unexpected termination. Analysis of a large number of sudden deaths from around the world since 1973 reveals a market adjusted 1.7% decline in the value of geographically connected companies. The decline in value is followed by a drop in the rate of growth in sales and access to credit. Our results additionally show a larger effect for family firms, firms with high growth prospects, firms operating in industries over which the politician has jurisdiction, and firms headquartered in highly corrupt countries.

political ties, political connections

Abstract:
We examine announcement period abnormal returns to acquirers of listed and unlisted targets in 17 Western European countries over the interval 1996-2001. Acquirers of listed targets earn an insignificant average abnormal return of -0.38%, while acquirers of unlisted targets earn a significant average abnormal return of 1.48%. This "listing effect" in acquirers' returns persists through time and across countries and remains after controlling for the method of payment for the target, the acquirer's size and Tobin's Q, pre-announcement leakage of information about the transaction, whether the acquisition created a blockholder in the acquirer's ownership structure, whether the acquisition was a cross-border deal, and other variables. The fundamental factors that give rise to this listing effect, which has also been documented in US acquisitions, remain elusive.

Mergers and acquisitions

Abstract:
We examine announcement period abnormal returns to acquirers of listed and unlisted targets in 17 Western European countries over the interval 1996-2001. Acquirers of listed targets earn an insignificant average abnormal return of -0.38%, while acquirers of unlisted targets earn a significant average abnormal return of 1.48%. This listing-related factor in acquirers' returns persists through time and across countries and remains after controlling for the method of payment for the target, the acquirer's size and Tobin's Q, pre-announcement leakage of information about the transaction, whether the acquisition created a blockholder in the acquirer's ownership structure, whether the acquisition was a cross-border deal, and other variables. The fundamental factors that give rise to this listing-related effect, which has also been documented in US acquisitions, remain elusive.

Mergers and acquisitions

Abstract:
An important and growing literature in finance points to existence of considerable benefits to being a controlling shareholder. At the same time, the well established literature on mergers finds these key corporate events to be subject to agency costs. Relying on these two arguments, we employ a novel application of the Bertrand et al. (2002) insight to study the hypothesis that controlling shareholders use acquisitions to expropriate resources to their benefit. The findings do not allow us to reject the null hypothesis of proportional sharing of acquisition gains in favor of the alternative hypothesis of expropriation of bidder's minority shareholders.

Expropriation, mergers, event studies

Abstract:
An important and growing literature in finance points to existence of considerable benefits to being a controlling shareholder, especially when legal protection of minority shareholders is weak, and when separation of ownership from control is high. At the same time, the substantial and well established literature on mergers often finds these key corporate events to be subject to agency costs. Relying on these two arguments, we employ a novel application of the Bertrand et al. (2002) insight to study the hypothesis that controlling shareholders use acquisitions to expropriate resources to their benefit. The findings do not allow us to reject the null hypothesis of proportional sharing of acquisition gains in favor of the alternative hypothesis of expropriation of bidder's minority shareholders.

M&As, expropriation, controlling shareholder

Abstract:
We examine announcement period excess returns to acquirers of listed and unlisted targets in 17 Western European countries over the interval 1996 through 2001. Acquirers of listed targets earn an insignificant average excess return of -0.38%, while acquirers of unlisted targets earn a significant average excess return of +1.48%. This "listing effect" in acquirers' returns persists through time and across countries and remains after controlling for the method of payment for the target, the acquirer's size and Tobin's Q, pre-announcement leakage of information about the transaction, whether the acquisition created a blockholder in the acquirer's ownership structure, whether the acquisition was a cross-border deal, and other variables. The fundamental factors that give rise to the listing effect, which has also been documented in U.S. acquisitions, remain elusive.

Abstract:
We hypothesize that firms structure their asset holdings so as to shelter assets from extraction by politicians and bureaucrats. Specifically, in countries where the threat of political extraction is higher, we hypothesize that firms will hold a lower fraction of their assets in liquid form. Consistent with this conjecture, using firm-level data from 109 countries, we find that, across countries, corporate holdings of cash and marketable securities are negatively correlated with measures of political corruption. Further, we find that annual investment in property, plant, equipment, and inventory plus dividends is positively correlated with the measures of corruption suggesting that owners channel their cash into harder to extract assets. To the extent that this deployment of assets is less efficient than would occur in the absence of the threat of political extraction, corporate sheltering of assets may represent a channel through which corruption reduces economic growth.

Abstract:
This paper provides a comprehensive examination of the ways in which companies respond to a country-wide crisis through the restructuring of their assets (through asset sales, mergers or liquidations) or liabilities. We find the restructuring of liabilities to be the most common type of response. On the other hand, we argue that firms may be reluctant to engage in major asset sales due to substantial price discounts that need to be applied to these transactions during the crisis. In fact, we document that transaction multiples dropped by 40% during the crisis, compared to a pre-crisis period. We contrast financial and corporate governance considerations and find strong support for the notion that, during a crisis, financial constraints have a large impact on the restructuring choice. However, we find corporate governance (e.g., control) considerations to matter only marginally both in statistical and economic terms.

bankruptcy, liquidation, restructuring, corporate governance

Abstract:
Using new data for the universe of firms covered in Amadeus, we reconstruct the equity portfolios of shareholders who hold equity stakes in private and publicly-traded European firms. We find great heterogeneity in the degree of portfolio diversification across large shareholders. Exploiting this heterogeneity, we document that firms controlled by diversified large shareholders undertake riskier investments than firms controlled by non-diversified large shareholders. The impact of large shareholder diversification on corporate risk-taking is both economically and statistically significant. Our results have important implications at the policy level because they identify one channel through which policy changes aimed at improving capital market development and diversification can improve economic welfare.

Abstract:
Many firms voluntarily incur the costs of attempting to influence politicians. However, estimates of the value of political connections have been made in only a few cases. We propose a new approach to valuing political ties that builds on these previous studies. We consider connected to a politician all companies headquartered in the politician's hometown, and use an event study approach to value these ties at their unexpected termination. Analysis of a large number of sudden deaths from around the world since 1973, yields a 2% decline in market value of connected companies. Our stronger results are likely due to the lack of a clear event in earlier studies, and lead us to conclude that previous estimates understate the value of political ties.

Political connections, sudden deaths

Abstract:
In this paper we analyze the monitoring role of occupational pension funds in the UK. We argue that because of their objectives, structure and overall share holding, occupational pension funds are likely to have more incentives to monitor companies in which they hold large stakes than other financial institutions. By comparing companies in which these funds hold large stakes with a control group of companies listed on the London Stock Exchange, we show that occupational pension funds hold large stakes over a long-time period mainly in small companies. However, the value added by these funds is negligible and their holdings do not lead companies to comply with the Code of Best Practice or outperform their industry counterparts. Overall, our results suggest that occupational pension funds are not effective monitors.

Orate governance, pension funds, board structure, performance