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Control in pyramidal structures

Author

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  • Marc Levy

Abstract

Manuscript Type: Conceptual.Research Question/Issue: Shareholding structures are sometimes so complex that it can be difficult to know who are the actual owners and controllers of a firm. In particular, in continental Europe and Asia, control tunnelling appears frequently through pyramidal structures. Different methods exist to isolate control from ownership. This paper attempts to better understand these different models and their implications.Research Findings/Results: After describing ownership structure through a graph association, this paper analyzes the voting game at stake in the race for control. It compares existing methods and algorithms to identify the owners and controllers of a firm in a pyramidal structure without cross-ownership. These different methods are then applied to the case of a Belgian retailer, Colruyt. The results are compared and the influence of a control threshold is analyzed. Furthermore, it shows how the ownership structure allows the Colruyt family to maintain control of the firm even if there is dissension within the family.Theoretical Implications: This study clarifies definitions of ownership structures and provides a better understanding of models that analyze ownership structure and their implications.Practical Implications: In practice, these models can help shareholders achieve a majority of voting rights in the general assembly by identifying who are the influential partners. Furthermore, the models provide a means for external parties to determine whether control of a firm is attainable, and if so, how. Established shareholders may also use these models to ascertain the optimal ownership structure that will preserve their control with a minimum level of investment.

Suggested Citation

  • Marc Levy, 2009. "Control in pyramidal structures," ULB Institutional Repository 2013/14291, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:ulb:ulbeco:2013/14291
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    References listed on IDEAS

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    1. Ariane Chapelle, 2001. "Corporate governance en Belgique: l'effet des pyramides," ULB Institutional Repository 2013/9933, ULB -- Universite Libre de Bruxelles.
    2. Lucian Bebchuk & Reinier Kraakman & George Triantis, 1999. "Stock Pyramids, Cross-Ownership, and the Dual Class Equity: The Creation and Agency Costs of Seperating Control from Cash Flow Rights," NBER Working Papers 6951, National Bureau of Economic Research, Inc.
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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
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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