On the Determinants of Pyramidal Ownership: Evidence on Dilution of Minority Interests

36 Pages Posted: 26 Sep 2003

See all articles by Najah Attig

Najah Attig

Saint Mary's University - Department of Finance & Management Science

Klaus P. Fischer

affiliation not provided to SSRN

Yoser Gadhoum

University of Quebec at Montreal (UQAM) - Department of Business Strategy

Date Written: March 2004

Abstract

We investigate the determinants, costs and benefits of corporate affiliation to pyramidal holdings. We find that there is a mismatch between cash flow rights and voting rights in firms affiliated to pyramidal holdings, and that corporate policies reflect cash distribution preferences of the ultimate owners. We also find a permanent depressive effect of pyramidal ownership on corporate value. This finding is consistent with the hypothesis that the layers of equity holdings within the pyramidal holding contribute to form an impervious veil behind which ultimate owners engage in expropriating behavior. Our investigation of affiliated firms suggests that ultimate owners, mostly families, are adept at combining their cash flow rights, voting power, and distance from affiliates in a way that minimizes sensitivity to negative events and maximizes sensitivity to positive events.

Keywords: Pyramidal holdings, expropriation, corporate governance, corporate policies

JEL Classification: G32

Suggested Citation

Attig, Najah and Fischer, Klaus P. and Gadhoum, Yoser, On the Determinants of Pyramidal Ownership: Evidence on Dilution of Minority Interests (March 2004). EFA 2004 Maastricht Meetings Paper No. 4592. Available at SSRN: https://ssrn.com/abstract=434201 or http://dx.doi.org/10.2139/ssrn.434201

Najah Attig

Saint Mary's University - Department of Finance & Management Science ( email )

Halifax, Nova Scotia B3H 3C3
Canada
902-491-8679 (Phone)

Klaus P. Fischer (Contact Author)

affiliation not provided to SSRN

Yoser Gadhoum

University of Quebec at Montreal (UQAM) - Department of Business Strategy ( email )

School of Business Administration
Montreal, Quebec H3C 4R2
Canada
514 987 3000, extension 3107 (Phone)

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