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Corporate Control with Cross-Ownership

Author

Listed:
  • Marc Levy
  • Ariane Szafarz

Abstract

Cross-ownership breaks the traditional rule of one-sided corporate control. Using a novel approach based on stochastic voting processes, this paper proposes a general method to determine control stakes in the presence of cross-ownership. It offers a generalization of the Banzhaf index, which allows coping with cross-ownership-inclusive ownership graphs. The original feature of this approach is its absolute sequentiality. We also operationalize this new approach by building an algorithm, which determines the shareholders’ respective control powers in any corporate structure. From a governance viewpoint, we emphasize that cross-ownership may act as a powerful device for shareholders’ expropriation. To make this point, we revisit the leading example of the German Allianz Group.

Suggested Citation

  • Marc Levy & Ariane Szafarz, 2011. "Corporate Control with Cross-Ownership," Working Papers CEB 11-053, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:sol:wpaper:2013/101958
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    References listed on IDEAS

    as
    1. Malueg, David A., 1992. "Collusive behavior and partial ownership of rivals," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 27-34, March.
    2. Marc Levy, 2006. "Control in Pyramidal Structures," Working Papers CEB 06-023.RS, ULB -- Universite Libre de Bruxelles.
    3. T. Biebuyck & Ariane Chapelle & Ariane Szafarz, 2002. "Les leviers de contrôle des actionnaires majoritaires," Working Papers CEB 03-001.RS, ULB -- Universite Libre de Bruxelles.
    4. Ariane Chapelle, 2001. "Corporate governance en Belgique: l'effet des pyramides," ULB Institutional Repository 2013/9933, ULB -- Universite Libre de Bruxelles.
    5. repec:sol:spaper:2013/149192 is not listed on IDEAS
    6. 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.
    7. Ariane Chapelle & Ariane Szafarz, 2006. "Control consolidation with a threshold: an algorithm," Working Papers CEB 06-007.RS, ULB -- Universite Libre de Bruxelles.
    8. Ariane Chapelle & Ariane Szafarz, 2005. "Controlling firms through the majority voting rule," Post-Print CEB, ULB -- Universite Libre de Bruxelles, vol. 355(2-4), pages 509-529, September.
    9. repec:hrv:faseco:30747162 is not listed on IDEAS
    10. Gugler, Klaus & Yurtoglu, B. Burcin, 2003. "Corporate governance and dividend pay-out policy in Germany," European Economic Review, Elsevier, vol. 47(4), pages 731-758, August.
    11. Nicodano, Giovanna, 1998. "Corporate groups, dual-class shares and the value of voting rights," Journal of Banking & Finance, Elsevier, vol. 22(9), pages 1117-1137, September.
    12. Victor Dorofeenko & Larry Lang & Klaus Ritzberger & Jamsheed Shorish, 2008. "Who controls Allianz?," Annals of Finance, Springer, vol. 4(1), pages 75-103, January.
    13. Turnovec, Frantisek, 1999. "Privatization, ownership structure and transparency: how to measure the true involvement of the state," European Journal of Political Economy, Elsevier, vol. 15(4), pages 605-618, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    ownership and control; cross-ownership; tunneling; Banzhaf index; Allianz group;

    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
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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