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Diversification and Ownership Concentration

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Author Info
Loriana Pelizzon () (Department of Economics, University Of Venice Cà Foscari)
Bruno Maria Parigi (Department of Economics, University of Padua)

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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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Paper provided by University of Venice "Ca' Foscari", Department of Economics 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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Related research
Keywords: Ownership concentration; Diversificationopportunities; Investor protection.;

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Find related papers by JEL classification:
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
G2 - Financial Economics - - Financial Institutions and Services
G3 - Financial Economics - - Corporate Finance and Governance

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Cited by:
(explanations, 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.)

  1. Luigi Guiso & Tullio Jappelli, 2008. "Financial Literacy and Portfolio Diversification," Economics Working Papers ECO2008/31, European University Institute. [Downloadable!]
    Other versions:
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