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Diversification and Ownership Concentration

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  • Loriana Pelizzon

    ()
    (Department of Economics, University Of Venice Cà Foscari)

  • Bruno Maria Parigi

    (Department of Economics, University of Padua)

Abstract

In a mean-variance economy where controlling shareholders can divert profits, equity ownership is more concentrated the higher the stock returns correlation. A higher returns correlation reduces the benefits of diversification, giving rise to both a higher investment by the controlling shareholder in the asset that he controls and a lower investment by the non-controlling shareholders. The empirical analysis supports the predictions of the model. In particular, controlling for measures of the quality of investor protection, and other structural variables, we find that equity ownership is significantly more concentrated in countries where the stock returns correlation is higher. Moreover the intensity of the relationship between the stock returns correlation and ownership concentration is amplified by poor investor protection.

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Bibliographic Info

Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2007_29.

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Date of creation: 2007
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Handle: RePEc:ven:wpaper:2007_29

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Keywords: Ownership concentration; Diversificationopportunities; Investor protection.;

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Cited by:
  1. Luigi Guiso & Tullio Jappelli, 2008. "Financial Literacy and Portfolio Diversification," EIEF Working Papers Series, Einaudi Institute for Economics and Finance (EIEF) 0812, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2008.
  2. Mori, Naoya, 2010. "Tax clientele effects of dividends under intertemporal consumption choices," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(5), pages 1089-1097, May.

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