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Path Dependence or Convergence? The Evolution of Corporate Ownership Around the World

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  • Andrew J.Y. Yeh

    ()
    (Reserve Bank of New Zealand)

  • Steven Lim

    (University of Waikato)

  • Ed Vos

    (University of Waikato)

Abstract

We offer a theory that sheds light on the current debate over whether the form of corporate ownership converges to the Berle-Means image. Our analytical results are threefold. First, legal rules and firm-specific protective arrangements are complementary. Secondly, corporate ownership patterns can be convergent or path dependent depending on the relative importance of these protective arrangements. We predict, for example, diffuse stock ownership in countries that impose legal limits on blockholders’ power to expropriate minority investor rights. Thirdly, we find that convergence toward diffuse share ownership is a movement towards the social optimum. Our empirical results suggest a case for the co-existence of path dependence and functional convergence (convergence to the diffuse form of share ownership through cross-listings on U.S. stock exchanges that impose more stringent disclosure and listing requirements). These results have implications for the design of executive compensation, the case for institutional investor activism and the proposal to increase shareholder power.

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File URL: ftp://mngt.waikato.ac.nz/RePEc/wai/econwp/0607.pdf
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Bibliographic Info

Paper provided by University of Waikato, Department of Economics in its series Working Papers in Economics with number 06/07.

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Length: 55 pages
Date of creation: 01 Apr 2006
Date of revision:
Handle: RePEc:wai:econwp:06/07

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Keywords: corporate governance; ownership concentration; institutions; quality of governance; path dependence; functional convergence;

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