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Ownership: Evolution and Regulation

Author

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  • Julian Franks
  • Colin Mayer
  • Stefano Rossi

Abstract

While we associate the U.K. with a high level of investor protection, this was not the case in the first half of the twentieth century - U.K. capital markets were marked by an absence of investor protection and few common law rights for minorities. Notwithstanding this, securities markets flourished. There were a large number of listed firms, companies issued substantial amounts of equity and inside ownership diminished rapidly. Much of the equity issuance arose from share exchanges in mergers and acquisitions and these in turn were the main cause of dilution of inside ownership. They relied on informal relations of trust between directors and shareholders. When formal regulation (both statutory and self-regulation) was introduced in the second half of the century, it had no effect on equity issuance or dispersion. Instead, it was associated with a much higher level of trading of shares as reflected in membership of controlling coalitions of shareholders and in the emergence of a market for corporate control. These results cast doubt on the law and finance explanation of the development of financial markets and suggest that growth of equity and dispersion of ownership in the U.K. relied more on informal relations of trust than on formal systems of regulation.

Suggested Citation

  • Julian Franks & Colin Mayer & Stefano Rossi, 2003. "Ownership: Evolution and Regulation," OFRC Working Papers Series 2003fe14, Oxford Financial Research Centre.
  • Handle: RePEc:sbs:wpsefe:2003fe14
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    File URL: http://www.finance.ox.ac.uk/file_links/finecon_papers/2003fe14.pdf
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    References listed on IDEAS

    as
    1. Alexander Dyck & Luigi Zingales, 2004. "Private Benefits of Control: An International Comparison," Journal of Finance, American Finance Association, vol. 59(2), pages 537-600, April.
    2. Hans Degryse & Steven Ongena, 2005. "Distance, Lending Relationships, and Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 231-266, February.
    3. Franks, Julian & Mayer, Colin, 2001. "Ownership and Control of German Corporations," Review of Financial Studies, Society for Financial Studies, vol. 14(4), pages 943-977.
    4. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law and finance: why does legal origin matter?," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 653-675, December.
    5. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    6. Spagnolo, Giancarlo, 1999. "Social relations and cooperation in organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 38(1), pages 1-25, January.
    7. Franks, Julian & Mayer, Colin, 1996. "Hostile takeovers and the correction of managerial failure," Journal of Financial Economics, Elsevier, vol. 40(1), pages 163-181, January.
    8. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    9. Haidar, Jamal Ibrahim, 2009. "Investor protections and economic growth," Economics Letters, Elsevier, vol. 103(1), pages 1-4, April.
    10. Franks, Julian & Mayer, Colin & Renneboog, Luc, 2001. "Who Disciplines Management in Poorly Performing Companies?," Journal of Financial Intermediation, Elsevier, vol. 10(3-4), pages 209-248, July.
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    More about this item

    JEL classification:

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

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