The Dynamics of Shareholder Dispersion and Control in Australia

46 Pages Posted: 19 Jan 2021 Last revised: 22 Jan 2021

See all articles by Jenifer Varzaly

Jenifer Varzaly

University of Cambridge - Faculty of Law; Durham University - Law School

Date Written: January 9, 2021

Abstract

There is ongoing academic interest in understanding share ownership and control dynamics in publicly listed companies, given the corporate governance and regulatory implications arising therefrom. This article presents a new dataset and analysis of shareholder information, focusing on the largest 50 publicly listed companies in Australia, filling a striking 12 year gap in the existing literature. Specifically, the following issues are addressed:
1. The level of institutional ownership within the largest 20 shareholders in each of the 50 companies; 2. The concentration of that ownership based on the percentage of issued capital owned by the largest three shareholders; 3. The control of that ownership, to determine whether ownership and control diverge; and
4. Where ownership and control diverge, substantial shareholding information is collected and analysed, in order to provide a more complete picture of share ownership patterns in the Australian context.

The study findings provide a clear indication of the concentration of share capital in the hands of institutional shareholders in Australia. Yet, in relation to shareholder dispersion, all of the 20 largest publicly listed companies can be classified as widely held (versus 13 in the 1999 La Porta et al study) at the 20% level of control. Additionally, the results have a preliminary bearing on the relevance of common ownership theory within Australia. Regarding the ‘Big Three’ index funds, these institutions comprise 33.33% of the substantial shareholding positions across the ASX 50. Notably, 87.1% of these substantial holdings are in companies within the financial sector. The key implications arising from the findings are that managerial agency costs and the agency costs of institutional investors are of fundamental importance in the Australian context. Based on this understanding, there are two central messages for regulators and policy makers. First, corporate governance regulation must evolve in parallel to changes in share ownership and distribution. Second, there is a need for complementarity between shareholder patterns and regulation which incentivises potential governance actors and mitigates identified agency costs.

Keywords: corporate law, corporate governance, securities law, share ownership and control, ownership concentration, institutional investors, stewardship, common ownership, agency costs, index funds, shareholder activism.

JEL Classification: K22, G34, G23, N20, 016

Suggested Citation

Varzaly, Jenifer, The Dynamics of Shareholder Dispersion and Control in Australia (January 9, 2021). University of Cambridge Faculty of Law Research Paper No. 5/2021, Available at SSRN: https://ssrn.com/abstract=3768856 or http://dx.doi.org/10.2139/ssrn.3768856

Jenifer Varzaly (Contact Author)

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom

Durham University - Law School ( email )

50 North Bailey
Palatine Centre
Durham, County Durham DH1 3ET
United Kingdom

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