Rebuilding the Great Pyramids: A Method for Identifying Control Relations in Complex Ownership Structures

Abstract

Identifying the corporate controller (controlling shareholder, ultimate owner) is an essential prerequisite for any debate on the corporate governance of a specific firm and of entire markets. This paper aims to provide a comprehensive, precise and economically sound method for identifying control relations on the corporate level and especially in complex ownership structures. We apply weighted voting games literature as a theoretical framework for our analysis and use the Shapley-Shubik and the Banzhaf power indices to determine control rights. The core element of the proposed method, distinguishing our study from others, in solving the puzzle of corporate control, is the simultaneous analysis of both the specific ownership map within the corporation and the corporate network in which the firm is embedded. We implemented our algorithm into a Java computer program and tested it on a real-world data set of corporate ownership in the Israeli market. The direct product of the analysis of these data is a comprehensive map of control relations at every time point. We find that the corporate control relations identified by our method are richer and more accurate than those provided by different official sources.