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Controlling firms through the majority voting rule

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  • Chapelle, Ariane
  • Szafarz, Ariane

Abstract

Pyramids, cross-ownership, rings and other complex features inducing control tunnelling are frequent in the European and Asian industrial world. Based on the matrix methodology, this paper offers a model for measuring integrated ownership and threshold-based control, applicable to any group of interrelated firms. In line with the theory on pyramidal control, the model avoids the double counting problem and sets the full control threshold at the conservative—but incontestable—majority level of 50% of the voting shares. Any lower threshold leads to potential inconsistencies and leaves the observed high level of ownership of many dominant shareholders unexplained. Furthermore, the models leads to ultimate shareholders’ control ratios consistent with the majority voting rule. Finally, it is applied to the Frère Group, a large European pyramidal holding company known for mastering control leverages.

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Bibliographic Info

Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

Volume (Year): 355 (2005)
Issue (Month): 2 ()
Pages: 509-529

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Handle: RePEc:eee:phsmap:v:355:y:2005:i:2:p:509-529

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Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

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Keywords: Majority voting rule; Pyramidal ownership; Corporate control; Corporate governance;

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References

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  1. Flath, David, 1992. "Indirect shareholding within Japan's business groups," Economics Letters, Elsevier, vol. 38(2), pages 223-227, February.
  2. Franks, Julian & Mayer, Colin, 1996. "Hostile takeovers and the correction of managerial failure," Journal of Financial Economics, Elsevier, vol. 40(1), pages 163-181, January.
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  4. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
  5. T. Biebuyck & Ariane Chapelle & Ariane Szafarz, 2002. "Les leviers de contrôle des actionnaires majoritaires," Working Papers CEB 03-001.RS, ULB -- Universite Libre de Bruxelles.
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  13. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
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