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Ownership, control and market liquidity

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  • Hamon, Jacques
  • Ginglinger, Edith
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    Abstract

    We examine how ownership concentration and the separation of ownership and control affect secondary-market liquidity in France. We find that firms with a large insider blockholder exhibit significantly lower liquidity. However, different methods of enhancing control affect liquidity in different ways. Pyramid structures impair market liquidity. Double voting right shares, a French specific means of control enhancement rewarding long-term shareholders and restraining insiders from trading their shares, lead to increased liquidity, especially for family firms. Our results suggest that by using double voting rights to enhance their control, a transparent decoupling mechanism, rather than pyramids, an opaque decoupling mechanism, blockholders offer higher secondary-market liquidity to outside investors.

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    File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/9676/2/SSRN-id1071624.pdf
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    Bibliographic Info

    Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/9676.

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    Date of creation: 2012
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    Publication status: Published in Finance, 2012, Vol. 33, no. 2. pp. 61-99.Length: 38 pages
    Handle: RePEc:dau:papers:123456789/9676

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    Related research

    Keywords: Ownership; Blockholders; Long-term shareholders; Ultimate control; Pyramids; Voting rights; Liquidity; Bid-ask spread;

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    1. Brockman, Paul & Chung, Dennis Y. & Yan, Xuemin (Sterling), 2009. "Block Ownership, Trading Activity, and Market Liquidity," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 44(06), pages 1403-1426, December.
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    7. Attig, Najah & Fong, Wai-Ming & Gadhoum, Yoser & Lang, Larry H.P., 2006. "Effects of large shareholding on information asymmetry and stock liquidity," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(10), pages 2875-2892, October.
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    17. Renée Adams & Daniel Ferreira, 2008. "One Share-One Vote: The Empirical Evidence," Review of Finance, European Finance Association, European Finance Association, vol. 12(1), pages 51-91.
    18. Patrick Bolton & Ernst-Ludwig von Thadden, 1998. "Blocks, Liquidity, and Corporate Control," Journal of Finance, American Finance Association, American Finance Association, vol. 53(1), pages 1-25, 02.
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