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Corporate Control with Cross-Ownership

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  • Marc Levy
  • Ariane Szafarz

Abstract

Cross-ownership breaks the traditional rule of one-sided corporate control. Using a novel approach based on stochastic voting processes, this paper proposes a general method to determine control stakes in the presence of cross-ownership. It offers a generalization of the Banzhaf index, which allows coping with cross-ownership-inclusive ownership graphs. The original feature of this approach is its absolute sequentiality. We also operationalize this new approach by building an algorithm, which determines the shareholders’ respective control powers in any corporate structure. From a governance viewpoint, we emphasize that cross-ownership may act as a powerful device for shareholders’ expropriation. To make this point, we revisit the leading example of the German Allianz Group.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 11-053.

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Length: 41 p.
Date of creation: Nov 2011
Date of revision:
Publication status: Published by:
Handle: RePEc:sol:wpaper:2013/101958

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Related research

Keywords: ownership and control; cross-ownership; tunneling; Banzhaf index; Allianz group;

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References

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  1. Chapelle, Ariane & Szafarz, Ariane, 2005. "Controlling firms through the majority voting rule," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 355(2), pages 509-529.
  2. Ariane Chapelle & Ariane Szafarz, 2006. "Control consolidation with a threshold: an algorithm," Working Papers CEB 06-007.RS, ULB -- Universite Libre de Bruxelles.
  3. Malueg, D.A., 1990. "Collusive Behavior And Partial Ownership Of Rivals," Papers 90-9, U.S. Department of Justice - Antitrust Division.
  4. Marc Lévy, 2009. "Control in pyramidal structures," ULB Institutional Repository 2013/14291, ULB -- Universite Libre de Bruxelles.
  5. T. Biebuyck & Ariane Chapelle & Ariane Szafarz, 2005. "Les leviers de contrôle des actionnaires majoritaires," ULB Institutional Repository 2013/719, ULB -- Universite Libre de Bruxelles.
  6. Ariane Chapelle, 2001. "Corporate governance en Belgique: l'effet des pyramides," ULB Institutional Repository 2013/9933, ULB -- Universite Libre de Bruxelles.
  7. Gugler, Klaus & Yurtoglu, B. Burcin, 2003. "Corporate governance and dividend pay-out policy in Germany," European Economic Review, Elsevier, vol. 47(4), pages 731-758, August.
  8. Nicodano, Giovanna, 1998. "Corporate groups, dual-class shares and the value of voting rights," Journal of Banking & Finance, Elsevier, vol. 22(9), pages 1117-1137, September.
  9. Victor Dorofeenko & Larry Lang & Klaus Ritzberger & Jamsheed Shorish, 2008. "Who controls Allianz?," Annals of Finance, Springer, vol. 4(1), pages 75-103, January.
  10. Marc Levy, 2010. "The Banzhaf Index in Complete and Incomplete Shareholding Structures: A New Algorithm," Working Papers CEB 10-046, ULB -- Universite Libre de Bruxelles.
  11. Turnovec, Frantisek, 1999. "Privatization, ownership structure and transparency: how to measure the true involvement of the state," European Journal of Political Economy, Elsevier, vol. 15(4), pages 605-618, November.
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