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Control consolidation with a threshold: An algorithm

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  • Ariane Chapelle
  • Ariane Szafarz

Abstract

Control tunnelling over firms can be reached through pyramids, cross-ownership, and other complex features. This phenomenon is frequent in Europe and in Asia. However, the theoretical literature has not yet converged toward a well-defined and robust measurement of integrated control that takes into account the threshold for control as applied in practice. Based on graph theory, this paper aims at filling this gap and proposes a new algorithm for evaluating the control tunnelling exerted by the firms' ultimate shareholders. Then, the paper discusses the various forms of control existing next to voting shares, like multiple voting rights, board representation and active monitoring, before suggesting ways to include them into the modelling of control.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/6065.

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Date of creation: 2007
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Publication status: Published in: I M A Journal of Management Mathematics (2007) v.18 n° 3,p.235-243
Handle: RePEc:ulb:ulbeco:2013/6065

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References

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  1. John S. Earle & Csaba Kucsera & Almos Telegdy, . "Ownership Concentration and Corporate Performance on the Budapest Stock Exchange: Do Too Many Cooks Spoil the Goulash?," Upjohn Working Papers and Journal Articles, W.E. Upjohn Institute for Employment Research jse20053, W.E. Upjohn Institute for Employment Research.
  2. Lucian Arye Bebchuk, 1999. "A Rent-Protection Theory of Corporate Ownership and Control," NBER Working Papers 7203, National Bureau of Economic Research, Inc.
  3. Franks, Julian R & Mayer, Colin & Renneboog, Luc, 2001. "Who Disciplines Management in Poorly Performing Companies?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2949, C.E.P.R. Discussion Papers.
  4. Jensen, Michael C. & Warner, Jerold B., 1988. "The distribution of power among corporate managers, shareholders, and directors," Journal of Financial Economics, Elsevier, Elsevier, vol. 20(1-2), pages 3-24, January.
  5. Alexander Dyck & Luigi Zingales, 2002. "Private Benefits of Control: An International Comparison," NBER Working Papers 8711, National Bureau of Economic Research, Inc.
  6. Guercio, Diane Del & Hawkins, Jennifer, 1999. "The motivation and impact of pension fund activism," Journal of Financial Economics, Elsevier, Elsevier, vol. 52(3), pages 293-340, June.
  7. T. Biebuyck & Ariane Chapelle & Ariane Szafarz, 2002. "Les leviers de contrôle des actionnaires majoritaires," Working Papers CEB, ULB -- Universite Libre de Bruxelles 03-001.RS, ULB -- Universite Libre de Bruxelles.
  8. Chapelle, Ariane & Szafarz, Ariane, 2005. "Controlling firms through the majority voting rule," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 355(2), pages 509-529.
  9. Ariane Chapelle, 2001. "Corporate governance en Belgique: l'effet des pyramides," ULB Institutional Repository 2013/9933, ULB -- Universite Libre de Bruxelles.
  10. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
  11. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, Elsevier, vol. 65(3), pages 365-395, September.
  12. Zingales, Luigi, 1994. "The Value of the Voting Right: A Study of the Milan Stock Exchange Experience," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 7(1), pages 125-48.
  13. Wahal, Sunil, 1996. "Pension Fund Activism and Firm Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 31(01), pages 1-23, March.
  14. Becht, Marco & Bolton, Patrick & Roell, Ailsa, 2003. "Corporate governance and control," Handbook of the Economics of Finance, Elsevier, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 1, pages 1-109 Elsevier.
  15. Marc Goergen, 2005. "Corporate Governance Convergence: Evidence From Takeover Regulation Reforms in Europe," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 21(2), pages 243-268, Summer.
  16. Koke, Jens, 2004. "The market for corporate control in a bank-based economy: a governance device?," Journal of Corporate Finance, Elsevier, Elsevier, vol. 10(1), pages 53-80, January.
  17. Sanford J. Grossman & Oliver D. Hart, 1987. "One Share/One Vote and the Market for Corporate Control," NBER Working Papers 2347, National Bureau of Economic Research, Inc.
  18. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2000. "Ferreting Out Tunneling: An Application to Indian Business Groups," NBER Working Papers 7952, National Bureau of Economic Research, Inc.
  19. Flath, David, 1992. "Indirect shareholding within Japan's business groups," Economics Letters, Elsevier, Elsevier, vol. 38(2), pages 223-227, February.
  20. repec:rus:hseeco:72155 is not listed on IDEAS
  21. Bennedsen, Morten & Wolfenzon, Daniel, 2000. "The balance of power in closely held corporations," Journal of Financial Economics, Elsevier, Elsevier, vol. 58(1-2), pages 113-139.
  22. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, Elsevier, vol. 58(1-2), pages 81-112.
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Citations

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Cited by:
  1. Marc Lévy, 2009. "Control in pyramidal structures," ULB Institutional Repository 2013/14291, ULB -- Universite Libre de Bruxelles.
  2. Evžen Kocenda & Jan Hanousek, 2009. "State Ownership and Control in the Czech Republic," CESifo Working Paper Series 2801, CESifo Group Munich.
  3. Marc Levy & Ariane Szafarz, 2011. "Corporate Control with Cross-Ownership," Working Papers CEB, ULB -- Universite Libre de Bruxelles 11-053, ULB -- Universite Libre de Bruxelles.
  4. Marc Lévy, 2010. "La «Pax Electrica» a-t-elle réduit le contrôle de Suez sur Elia, le transporteur belge d’électricité?," Revue Finance Contrôle Stratégie, revues.org, revues.org, vol. 13(4), pages 139-159, December.
  5. Jan Hanousek & Evžen Kočenda, 2011. "Extent of the Integrated State Ownership and Effect of the State Control on Performance of Czech Firms," Politická ekonomie, University of Economics, Prague, University of Economics, Prague, vol. 2011(1), pages 82-104.

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