Strong Managers and Passive Institutional Investors in the UK
AbstractThe first striking feature is that ownership of the average UK company is diffuse: a coalition of at least eight shareholders is required to reach an absolute majority of voting rights. Even though the average firm has a dispersed ownership, the reader should bear in mind that there are about ten per cent of firms where the founder or his heirs are holding more than 30 per cent. The ownership structure is also shaped by regulation; the mandatory takeover threshold of 30%, for example, has an important impact on the ownership structure. In about 4% of sample companies, corporate shareholders hold just under 30 per cent of the shares. Second, institutional investors are the most important category of shareholders. However, they tend to follow passive strategies and often do not exercise the votes attached to their shares. Third, the passive stance adopted by institutions increases the already significant power of directors, who are the second most important category of shareholders. Franks, Mayer and Renneboog (1998) show that when directors own substantial shareholdings, they use their voting power to entrench their positions and they can impede monitoring actions taken by other shareholders to restructure the board, even in the wake of poor corporate performance. Fourth, there is an important market for share stakes and share stakes do not tend to be dispersed. Fifth, some of the characteristics of the British system of corporate governance, such as the proxy voting and the one-tier board structure, further strengthen the discretionary power of directors. Therefore, the main agency conflict emerging from the diffuse ownership structure is the potential expropriation of shareholders by the management.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 1999.21.
Date of creation: Feb 1999
Date of revision:
Corporate governance; Capital and Ownership structure;
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-06-08 (All new papers)
- NEP-FIN-1999-06-08 (Finance)
- NEP-IND-1999-06-08 (Industrial Organization)
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.:
- Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997.
"Legal Determinants of External Finance,"
Harvard Institute of Economic Research Working Papers
1788, Harvard - Institute of Economic Research.
- Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Legal Determinants of External Finance," Working Paper 19443, Harvard University OpenScholar.
- Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
- RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, . "Legal Determinants of External Finance,"," CRSP working papers 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Franks, J. & Mayer, C. & Renneboog, L.D.R., 1998. "Who Disciplines Bad Management?," Discussion Paper 1998-130, Tilburg University, Center for Economic Research.
- Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 110.
- Brennan, M. J. & Franks, J., 1997. "Underpricing, ownership and control in initial public offerings of equity securities in the UK," Journal of Financial Economics, Elsevier, vol. 45(3), pages 391-413, September.
- Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 351.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (barbara racah).
If references are entirely missing, you can add them using this form.