Evolution of Control of Cross-Listed Companies
40 Pages Posted: 12 May 2011
Date Written: May 1, 2011
Some – such as La Porta et al. (1999) explain the dispersed control, which is the norm in common law countries, by the better protection of minority shareholders. Conversely, concentrated control, which prevails in civil law countries, is thought to be caused by low shareholder protection. This paper examines whether changes in the legal environment of a company, via cross-listing, affect its control structure. In particular, we investigate whether companies that cross-list on common law markets evolve towards dispersed control. Using a sample of 126 companies that have cross-listed on 18 stock markets during the period of 1990 to 2000, our analysis does not reveal that cross-listing on common law markets affects the subsequent control structure of the sample companies. We find that company characteristics such as initial control structure and risk are better determinants of the evolution of control. In addition, we find that firms that incorporate in countries with good quality of accounting are more likely to evolve towards a dispersed control structure. Our results suggest that the optimal ownership and control structure varies across companies.
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