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Why Are the Levels of Control (So) Different in German and U.K. Companies? Evidence from Initial Public Offerings

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  • Marc Goergen
  • Luc Renneboog

Abstract

We analyze why the control of listed German and U.K. companies is so different. As shareholders in Germany are less protected and control is less expensive, German investors prefer controlling stakes. We also focus on economic factors such as profitability, risk, and growth to predict the probability of occurrence of different states of control six years after the flotation. Large U.K. companies become widely held, whereas in large German firms new shareholders control significantly larger stakes. Wealth constraints become binding for U.K. shareholders, whereas German shareholders can avoid this by using pyramids. We find substantial differences between a takeover by a concentrated shareholder and one by a widely held company. For the United Kingdom, the probability of the former increases when the company is risky, small, and poorly performing. Conversely, the latter is more likely when the target is large, fast growing, and profitable. Poor performance and high risk require control and monitoring by a concentrated shareholder. Conversely, high growth and profitability attract widely held companies. Founders are less inclined to dilute their stake to retain private benefits of control. When German firms are profitable and risky, control is likely to go to a concentrated shareholder, but growth and low profitability increase the probability of a control acquisition by a widely held firm. Copyright 2003, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Journal of Law, Economics, and Organization.

Volume (Year): 19 (2003)
Issue (Month): 1 (April)
Pages: 141-175

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Handle: RePEc:oup:jleorg:v:19:y:2003:i:1:p:141-175

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Cited by:
  1. Goergen, M. & Manjon, M.C. & Renneboog, L.D.R., 2004. "Recent Developments in German Corporate Governance," Discussion Paper 2004-014, Tilburg University, Tilburg Law and Economic Center.
  2. Correia da Silva, L. & Goergen, M. & Renneboog, L.D.R., 2002. "When do German Firms Change their Dividends?," Discussion Paper 2002-056, Tilburg University, Center for Economic Research.
  3. Szilagyi, P.G., 2007. "Corporate Governance and the Agency Costs of Debt and Outside Equity," Open Access publications from Tilburg University urn:nbn:nl:ui:12-321510, Tilburg University.
  4. Marc Goergen & Miguel Manjon & Luc Renneboog, 2008. "Is the German system of corporate governance converging towards the Anglo-American model?," Journal of Management and Governance, Springer, vol. 12(1), pages 37-71, March.
  5. Goergen, M. & Khurshed, A. & Renneboog, L.D.R., 2006. "Why are the French so Different from the Germans? Underpricing of IPOs on the Euro New Markets," Discussion Paper 2006-008, Tilburg University, Tilburg Law and Economic Center.
  6. Victoria Krivogorsky & Gary Grudnitski, 2010. "Country-specific institutional effects on ownership: concentration and performance of continental European firms," Journal of Management and Governance, Springer, vol. 14(2), pages 167-193, May.
  7. Marc Goergen, 2005. "Corporate Governance Convergence: Evidence From Takeover Regulation Reforms in Europe," Oxford Review of Economic Policy, Oxford University Press, vol. 21(2), pages 243-268, Summer.
  8. Sudi Sudarsanam & Tim Broadhurst, 2012. "Corporate governance convergence in Germany through shareholder activism: Impact of the Deutsche Boerse bid for London Stock Exchange," Journal of Management and Governance, Springer, vol. 16(2), pages 235-268, May.
  9. Van der Elst, Christoph, 2004. "Industry-specificities and size of corporations: determinants of ownership structures," International Review of Law and Economics, Elsevier, vol. 24(4), pages 425-446, December.
  10. Santella, Paolo & Baffi, Enrico & Drago, Carlo & Lattuca, Dino, 2008. "A Comparative Analysis of the Legal Obstacles to Institutional Investor Activism in Europe and in the US," MPRA Paper 8929, University Library of Munich, Germany.
  11. Svetlana BILOOCAIA, 2011. "Analysis of the Issuers’ Main Risks during the IPO," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 378-383.
  12. Christoph van der Elst, 2004. "Industry-specificities and Size of Corporations: Determinants of Ownership Structures," Working Papers 04-19, Utrecht School of Economics.

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