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Controlling Firms through the Majority Voting Rule

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Author Info
Ariane Chapelle () (Centre Emile Bernheim, Université libre de Bruxelles, Brussels)
Ariane Szafarz () (Centre Emile Bernheim and DULBEA, Université libre de Bruxelles, Brussels)

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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 unexplained the observed high level of ownership of many dominant shareholders. 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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Paper provided by Université libre de Bruxelles, Department of Applied Economics (DULBEA) in its series Working Papers DULBEA with number 05-05.RS.

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Length: 20 pages
Date of creation: Feb 2005
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Publication status: Published in Physica A, 2005, 355, pp. 509-529.
Handle: RePEc:dul:wpaper:05-05rs

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Related research
Keywords: Majority Voting Rule; Pyramidal Ownership; Corporate Control; Corporate Governance;

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  6. Randall K. Morck, 2000. "Concentrated Corporate Ownership," NBER Books, National Bureau of Economic Research, Inc, number morc00-1.
  7. Thibault Biebuyck & Ariane Chapelle & Ariane Szafarz, 2005. "Les leviers de contrôle des actionnaires majoritaires," Working Papers DULBEA 05-03.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
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  8. Alexander Dyck & Luigi Zingales, 2004. "Private Benefits of Control: An International Comparison," Journal of Finance, American Finance Association, vol. 59(2), pages 537-600, 04. [Downloadable!] (restricted)
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  9. 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. [Downloadable!] (restricted)
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