Does Local Market Correlation Matter for Ownership Structure and Control Rights?

41 Pages Posted: 21 Nov 2004

See all articles by Bruno Maria Parigi

Bruno Maria Parigi

University of Padova - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE; Ca Foscari University of Venice

Date Written: November 11, 2004

Abstract

We consider a general-equilibrium Capital Asset Pricing Model economy where the expected returns for controlling and non-controlling shareholders are different because the first can divert part of the profits. We show that local market correlation (the correlation between the returns of the risky assets) matters in determining ownership structure and control rights because it affects the loss from foregone diversification opportunities arising from concentrated ownership and the level of control benefits that non-controlling investors are willing to tolerate to achieve diversification. The empirical analysis support the model's conclusions. In particular our empirical findings on a group of countries are: ownership is more concentrated the higher is local market correlation; firm size and per capita income are higher the lower is local market correlation and control rights are affected by local market correlation.

Keywords: Corporate Governance, Market integration, CAPM

JEL Classification: D8, G2, G3

Suggested Citation

Parigi, Bruno Maria and Pelizzon, Loriana, Does Local Market Correlation Matter for Ownership Structure and Control Rights? (November 11, 2004). Available at SSRN: https://ssrn.com/abstract=621501 or http://dx.doi.org/10.2139/ssrn.621501

Bruno Maria Parigi

University of Padova - Department of Economics ( email )

via Del Santo 33
Padova, 35123
Italy

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Loriana Pelizzon (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.safe-frankfurt.de

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

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