PYRAMIDAL OWNERSHIP STRUCTURE AND CASH FLOW WEDGE: EVIDENCE FROM FAMILY BUSINESS GROUPS OF PAKISTAN

Abstract

This study examines the ownership structure and cash flow wedge of ultimate controlling owners in firms affiliated with family business groups of Pakistan. The study uses unique handpicked data comprising a sample of 181 group affiliated, 112 stand-alone, 21 foreign, and 12 state owned non-financial firms listed on Pakistan Stock Exchange for a period of 2008-17. The study finds high degree of ownership concentration particularly in 53 family business groups. The study also finds that controlling shareholders own over 20 percent shareholdings in 60 percent of all sample firms and families own 50 percent or more shareholdings in 44 percent of group affiliated firms. The novel contribution of this study is to systematically identifying the ownership affiliation of all family business groups, developing the pyramidal ownership structure of prominent family businesses and finding the difference in voting and cash flow rights which creates significant wedge for controlling family owners. This has strong implications for regulators to ensure effective implementation of regulations as well as minority shareholders and dispersed investors for cognizant investment decision making.