Advanced Search
MyIDEAS: Login

The Principle of Proportionality: Separating the Impact of Dual Class Shares, Pyramids and Cross-ownership on Firm Value Across Legal Regimes in Western Europe

Contents:

Author Info

  • Morten Bennedsen

    (Copenhagen Business School)

  • Kasper Nielsen

    (Department of Economics, University of Copenhagen)

Registered author(s):

    Abstract

    Recent policy initiatives within the harmonization of European company laws have promoted a so-called “principle of proportionality” through proposals that regulate mechanisms opposing a proportional distribution of ownership and control. We scrutinize the foundation for these initiatives by analyzing the use of instruments to separate ownership from control across legal regimes in a sample of over 4,000 publicly traded firms from 14 Western European countries. First, we confirm the negative impact on firm value from disproportional ownership structures previously established in a sample of Asian firms by Claessens et al. (2002). Second, we show that dual class shares have a larger and more significant negative effect on firm value than pyramids and cross holdings. Third, we find that the impact of disproportionality and the underlying instruments is inversely related to the level of investor protection. Thus, dual class shares and pyramids substitute legal protection in countries with inadequate investor protection. Fourth, we find no evidence of a significant effect of disproportionality instruments on earnings performance. Finally, we discuss policy implications of these findings in relationship to the process of harmonization of the European capital markets.

    Download Info

    If 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.
    File URL: http://www.econ.ku.dk/cie/dp/dp_2003-2006/2005-14.pdf/
    Download Restriction: no

    Bibliographic Info

    Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2005-14.

    as in new window
    Length: 34 pages
    Date of creation: Aug 2005
    Date of revision:
    Handle: RePEc:kud:kuieci:2005-14

    Contact details of provider:
    Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark
    Phone: (0045) 35 32 30 54
    Fax: +45 35 32 30 00
    Email:
    Web page: http://www.econ.ku.dk/cie/
    More information through EDIRC

    Related research

    Keywords: ownership structure; dual class shares; pyramids; EU company laws;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Eklund, Johan E., 2007. "Corporate Governance and Investments in Scandinavia - ownership concentration and dual-class equity structure," Working Paper Series in Economics and Institutions of Innovation 98, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:kud:kuieci:2005-14. See general 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: (Thomas Hoffmann).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.