Ownership, Control and Market Liquidity
Finance, 2012, 33, 2, pp. 61-99
50 Pages Posted: 3 Jul 2012 Last revised: 16 Jun 2015
Date Written: June 1, 2012
We examine how ownership concentration and the separation of ownership and control affect secondary-market liquidity in France. We find that firms with a large insider blockholder exhibit significantly lower liquidity. However, different methods of enhancing control affect liquidity in different ways. Pyramid structures impair market liquidity. Double voting right shares, a French specific means of control enhancement rewarding long-term shareholders and restraining insiders from trading their shares, lead to increased liquidity, especially for family firms. Our results suggest that by using double voting rights to enhance their control, a transparent decoupling mechanism, rather than pyramids, an opaque decoupling mechanism, blockholders offer higher secondary-market liquidity to outside investors.
Keywords: ownership, blockholders, long-term shareholders, ultimate control, pyramids, voting rights, liquidity, bid-ask spread
JEL Classification: G32, G34, G10
Suggested Citation: Suggested Citation