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Global ownership and corporate control networks

Listed author(s):
  • Armando Rungi

    ()

    (IMT School for advanced studies)

  • Gregory Morrison

    ()

    (University of Houston)

  • Fabio Pammolli

    ()

    (Politecnico di Milano)

In this contribution, at first, we introduce a basic network framework to study pyramidal structures and wedges between ownership and control of companies. Then, we apply it to a dataset of 53.5 million of companies operating in 208 countries. Among others, we detect a strong concentra- tion of corporate power, as less than 1% of parent companies collect more than 100 subsidiaries, but they are responsible for more than 50% of global sales. Therefore, we show that the role of indirect control, i.e., through middlemen subsidiaries, is relevant in 15% of domestic and 54% of foreign subsidiaries. Among foreign companies, cases emerge of blurring nationality, when control paths cross more than one national border, in the presence of multiple passports (19.1%), indirectly for- eign (24.5%), and round-tripping subsidiaries (1.33%). Finally, we relate indirect control strategies to country indicators of the institutional environment. We find that pyramidal structures arise less likely in the presence of good financial and contractual institutions in the parent's country, as these foster more transparent forms of corporate governance. Instead, parent companies choose indirect control through countries of subsidiaries that have better financial institutions, possibly because it is easier to coordinate decisions from remote. Finally, we find that offshore financial centers are preferred jurisdictions for middlemen subsidiaries, probably due to a lower taxation and a lack of financial disclosure.

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File URL: http://eprints.imtlucca.it/3767/1/EIC_WP_7_2017.pdf
File Function: First version, 2017
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Paper provided by IMT Institute for Advanced Studies Lucca in its series Working Papers with number 07/2017.

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Length: 37
Date of creation: Sep 2017
Date of revision: Sep 2017
Publication status: published in EIC working paper series
Handle: RePEc:ial:wpaper:7/2017
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  1. Carlo Altomonte & Armando Rungi, 2013. "Business Groups as Hierarchies of Firms: Determinants of Vertical Integration and Performance," Working Papers 2013.33, Fondazione Eni Enrico Mattei.
  2. Head, Keith & Mayer, Thierry & Ries, John, 2010. "The erosion of colonial trade linkages after independence," Journal of International Economics, Elsevier, vol. 81(1), pages 1-14, May.
  3. Levy, Marc, 2011. "The Banzhaf index in complete and incomplete shareholding structures: A new algorithm," European Journal of Operational Research, Elsevier, vol. 215(2), pages 411-421, December.
  4. Ariane Chapelle & Ariane Szafarz, 2006. "Control consolidation with a threshold: an algorithm," Working Papers CEB 06-007.RS, ULB -- Universite Libre de Bruxelles.
  5. Gardiner C. Means, 1931. "The Separation of Ownership and Control in American Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 46(1), pages 68-100.
  6. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
  7. Bohren, Oyvind & Michalsen, Dag, 1994. "Corporate cross-ownership and market aggregates: Oslo stock exchange 1980-1990," Journal of Banking & Finance, Elsevier, vol. 18(4), pages 687-704, September.
  8. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
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