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Control Rights, Pyramids, and the Measurement of Ownership Concentration

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  • Jeremy S.S. Edwards
  • Alfons J. Weichenrieder

Abstract

The recent corporate governance literature has emphasised the distinction between control and cash-flow rights but has disregarded measurement issues. Control rights may be measured by immediate shareholder votes, the voting rights as traced through ownership chains, or voting power indices that may or may not trace ownership through chains. We compare the ability of various measures to identify the effects of ownership concentration on share valuation using a German panel data set. The widely-used weakest link principle does not perform well in this comparison. Furthermore, measures that trace control through ownership chains do not outperform those that rely on immediate ownership, thus questioning the role of pyramids in the separation of control and cash-flow rights. The paper emphasises that there is a distinction between these two aspects of ownership even without pyramids or preferred stock, identification of which requires measures that, like the Shapley-Shubik index, do not simply equate control rights with voting rights.

Suggested Citation

  • Jeremy S.S. Edwards & Alfons J. Weichenrieder, 2009. "Control Rights, Pyramids, and the Measurement of Ownership Concentration," Post-Print hal-00701897, HAL.
  • Handle: RePEc:hal:journl:hal-00701897
    DOI: 10.1016/j.jebo.2009.05.016
    Note: View the original document on HAL open archive server: https://hal.science/hal-00701897
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    4. Tao Zeng, 2010. "Ownership Concentration, State Ownership, and Effective Tax Rates: Evidence from China’s Listed Firms," Accounting Perspectives, John Wiley & Sons, vol. 9(4), pages 271-289, December.
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    7. Jie He & Min Wang, 2021. "The Origin of Corporate Control Power," Papers 2106.01681, arXiv.org, revised Aug 2024.
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    9. Michael Klien, 2014. "Corporatization and the Behavior of Public Firms: How Shifting Control Rights Affects Political Interference in Water Prices," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(4), pages 393-422, June.
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    More about this item

    Keywords

    G32; G34; Control rights; Cash-flow rights; Pyramids; Ownership structure;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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