Changes In Ownership Structure Research Articles

Cross Listing, Bonding and Corporate Governance

This paper examines the relationship between cross listing and corporate governance for all Canadian firms, cross-listed on U.S. stock exchanges during the period 1997-2003. We find that cross-listed firms have more independent board and audit committees after the listing relative to non-cross-listed matched sample of firms and relative to the pre-listing period. Moreover, crosslisted firms experience changes in their ownership structure after the listing. Improvements that relate to the independence of board and audit committees are economically significant and affect positively changes in firms' valuation around the cross listing, whereas changes in ownership structure are not economically significant. The results are robust after adjusting for various firm risk characteristics. Our results are consistent with the literature on the bonding role of cross listings on U.S. stock exchanges.

Contractibility and ownership redirection in franchising: A property rights view

This paper offers a property rights theoretical interpretation of the ownership redirection hypothesis advanced by Oxenfeldt and Kelly [Oxenfeldt, Alfred R. and Kelly, Anthony O. (1968). “Will Successful Franchise Systems Ultimately Become Wholly-owned Chains?”, Journal of Retailing, 44, 69–83]. In a nutshell, couched in resource dependence theory, the ownership redirection hypothesis argues that successful franchise systems will eventually become corporate owned systems because of the reacquisition of franchisee units by the more powerful, and resource-flush franchisors. We argue that the structure and dynamics of ownership patterns in franchising networks depends on the contractibility of the franchisor's system-specific assets and the contractibility of the franchisee's local market assets. Under the property rights view, ownership redirection will result from an increase in the contractibility of the franchisee's local market assets (local market information, financial resources, and managerial capabilities) and the resultant increase of the franchisor's bargaining power during the contract period. We extend the franchise literature by arguing that informational, financial and managerial resource constraints are only relevant for the change of ownership structure if they are noncontractible. This hypothesis is evaluated using data collected from the Austrian franchise sector. The empirical results are largely supportive of the hypothesis.

Corporate Governance in China: An Analysis of Ownership Changes After the 1997 Announcement

Ownership changes in state owned enterprises (SOEs) alter the ownership structure and in turn impact upon the corporate governance of the enterprises. Combined, these have been important considerations within the SOE reform process, particularly since the 1997 zhuada fangxiao commitment. The successful reform of SOEs is a significant factor in China's future economic prosperity and ability to contend with unemployment and social justice issues. Thus, the focus of this paper is firstly, the structure of ownership of publicly listed firms and secondly, the impact of ownership changes on SOEs in China immediately after the 1997 announcement. The study found that there were no dramatic ownership changes or state divestment of listed SOE firms immediately after the 1997 announcement, in the years 1997 to 2000. The ownership structures of publicly listed companies slowly changed as state holdings reduced and private ownership increased. The finding is that the state continues to hold a supermajority and is not relinquishing control of the publicly listed enterprises with any haste or priority, despite the announcement. The trend appears to be in the direction of decreasing state holdings, though at a relatively slow rate. There were very few fully privately owned publicly listed firms in China. The study identified 211 significant changes in the ownership structure of listed firms in the years 1997 to 2000. All of these changes involved the reduction of state holdings. The event study conducted in this analysis found that the market response to these changes is significant and positive. The results suggest that the market deems ownership change which reduces state holdings favorably and expects these changes to improve firm performance. Given that changes in ownership structure are found to be a decrease in state ownership, it is further posited that the market regards any ownership change that reduces state influence to be positive.

Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature

This paper surveys the economic literature on boards of directors. Although a legal requirement for many organizations, boards are also an endogenously determined governance mechanism for addressing agency problems inherent to many organizations. Formal theory on boards of directors has been quite limited to this point. Most empirical work on boards has been aimed at answering one of three questions: 1) How are board characteristics such as composition or size related to profitability? 2) How do board characteristics affect the observable actions of the board? 3) What factors affect the makeup of boards and how they evolve over time? The primary findings from the empirical literature on boards are: Board composition is not related to corporate performance, while board size has a negative relation to corporate performance. Both board composition and size are correlated with the board's decisions regarding CEO replacement, acquisitions, poison pills, and executive compensation. Finally, boards appear to evolve over time as a function of the bargaining power of the CEO relative to the existing directors. Firm performance, CEO turnover, and changes in ownership structure appear to be important factors affecting changes to boards.

What is the Effect of Cross-Listing on Corporate Ownership and Control?

This paper examines whether and how ownership structure changes when firms from emerging markets cross-list their shares on a U.S. stock exchange. Prior to listing in the U.S., firms have controlling shareholders. After listing, controlling shareholders of firms that do their IPO in the U.S. significantly reduce their holdings. However, controlling shareholders of most other firms do not. In addition, there is a change in control in 26% of the firms. As a result, there is a decrease in the number of firms that are controlled by families and partnerships and an increase in the number of firms that are controlled by foreign public corporations. The abnormal return around the announcement of a control change is 6.31%. The results suggest that ownership shifts to controlling shareholders that place a lower value on private control benefits.

Reconcilable Differences: Momentum Trading by Institutions

A number of recent studies test whether institutional investors, as a group, engage in momentum trading. Given directly observable returns and changes in institutional ownership, it is surprising that these studies reach vastly different conclusions. I re-examine the relation between changes in ownership structure and lag returns and, contrary to most recent studies, find strong evidence of institutional momentum trading. Moreover, I demonstrate that differences from previous studies arise from a number of factors including: (1) value-weighting versus equal-weighting across securities, (2) averaging versus aggregating over managers, (3) disagreement in the signs of measures of institutional demand (e.g., an institution buying a security while decreasing the security's portfolio weight), and (4) correlation between current capitalization and both lag returns and the absolute value of measures of institutional demand. Once controlling for these factors, the results across different methods are remarkably uniform - institutional demand is strongly related to cross-sectional variation in lag returns.

The effect of UK building society conversion on pricing behaviour*1

The Building Society Act, 1986, allowed British building societies to convert from mutual to plc bank status – quoted on the stock market. Eight mutuals converted in the period 1995–2000. This study examines the pricing behaviour of the converted mutuals and remaining building societies to address the question of whether a change in ownership structure caused managers of the new stock banks to place profit/shareholder concerns ahead of the interests of the customer/owners of mutual building societies. Econometric tests using monthly interest rate data (1995–2001) on deposit products and mortgages confirm that managers began to set prices which would improve profits, at the expense of depositors and mortgagees. Deposit/mortgage rates were found to be permanently lower/higher post-conversion, the converts responded more rapidly to changes in the market rate of interest, and the new banks offered proportionately more rip-offs than the remaining building societies.

Norway

Up to ca. 1960, the forest sector was the largest export sector in Norway. Since then its importance has decreased, until in 2003 the export value totalled only 2.5% of the export sector. The import of forest products constituted a relatively higher share of the total import value than the export (about 3.3%). Pulp and paper, mainly newsprint, is the most important export product. The annual cut has declined 30 per cent over the last decade and in 2003 totalled about 7.5 million cubic metres. The reasons for this decline are not fully understood, but changes in ownership structure, low unemployment rates and good job opportunities outside of the forest sector and the abolition of cost-share programs are certainly some of the explanation. Private non industrial owners own 78.5% of the forest area and the average size of a forest property is 57 hectares. Almost all fellings are certified, and there is an intensive ongoing debate on the need for protection of a larger forest area. There is a large potential for developing non-wood products and services, and the forest owners association have companies and organisations dealing with this. There is a demand from both domestic and foreign customers for non-wood products and services but the co-operation with the domestic tourist industry still has to be improved to co-ordinate this effectively. There is a weak entrepreneurship culture in the forest products industry, with a few regional exceptions. The culture is mainly production oriented and market competence and international orientation is needed. Compared with other industries in Norway the level of education is low in the forest products industry. A large public program was started in 2002 to stimulate innovation and competence building activities in the forest products sector.

Contractibility and Ownership Redirection in Franchising: A Property Rights View

This paper offers a property rights theoretical interpretation of the ownership redirection hypothesis advanced by Oxenfeldt and Kelly (Oxenfeldt and Kelly 1968). In a nutshell, couched in resource dependence theory, the ownership redirection hypothesis argues that successful franchise systems will eventually become corporate owned systems because of the reacquisition of franchisee units by the more powerful, and resource-flush franchisors. We argue that the structure and dynamics of ownership patterns in franchising networks depends on the contractibility of the franchisor's system-specific assets and the contractibility of the franchisee's local market assets. Under the property rights view, ownership redirection will result from an increase in the contractibility of the franchisee's local market assets (local market information, financial resources and managerial capabilities) and the resultant increase of the franchisor's bargaining power during the contract period. We extend the franchise literature by arguing that informational, financial and managerial resource constraints are only relevant for the change of ownership structure if they are non-contractible. This hypothesis is evaluated using data collected from the Austrian franchise sector. The empirical results are largely supportive of the hypothesis.

The Effect of UK Building Society Conversion on Pricing Behaviour

to plc bank status - quoted on the stock market. Seven mutuals converted in the period 1995 to 2000. This study examines the pricing behaviour of the converted mutuals and remaining building societies to address the question of whether a change in ownership structure caused managers of the new stock banks to place profit/shareholder concerns ahead of the interests of the customer/owners of mutual building societies. The results of an econometric study using monthly interest rate data (1995-2001) on deposit products and mortgages confirm that managers began to set prices which would improve profits, at the expense of depositors and mortgagees. Deposit/mortgage rates were found to be permanently lower/higher post conversion, the converts responded more rapidly to changes in the market rate of interest, and the new banks offered proportionately more rip-offs than the remaining building societies.

The effect of UK building society conversion on pricing behaviour

The Building Society Act, 1986, allowed British building societies to convert from mutual to plc bank status – quoted on the stock market. Eight mutuals converted in the period 1995–2000. This study examines the pricing behaviour of the converted mutuals and remaining building societies to address the question of whether a change in ownership structure caused managers of the new stock banks to place profit/shareholder concerns ahead of the interests of the customer/owners of mutual building societies. Econometric tests using monthly interest rate data (1995–2001) on deposit products and mortgages confirm that managers began to set prices which would improve profits, at the expense of depositors and mortgagees. Deposit/mortgage rates were found to be permanently lower/higher post-conversion, the converts responded more rapidly to changes in the market rate of interest, and the new banks offered proportionately more rip-offs than the remaining building societies.

Changing Ownership Structures in the Water Supply and Sanitation Sector

The development over time of the water supply and sanitation sectors in four countries is analyzed to reveal the changing role of the private sector. In some cases, local, small-scale private water supply and sanitation systems have been able to develop progressively into large-scale official systems, which may later be privatized. In other cases, foreign capital has been more significant in the development of modern water supply and sanitation systems, particularly where privatization has occurred much earlier in the national development process. In much of the developing world, domestic water supply and sanitation is dominated not by the official water supply and sanitation companies but by independent operators who function without subsidies but with enormous variability in terms of quality of service and prices offered. However, they are constrained generally by the absence of appropriate institutional and legal frameworks, including the lack of independent regulatory authorities. There is a need, where appropriate, to continue to encourage large-scale private sector involvement in the official water supply sectors of the developing world. At the same time though, it is only by promoting policies that also further the development (where appropriate) of the independent water supply and sanitation providers that access to water supply and sanitation services can be maximized since better use of local resources in many developing countries, both local human resources and capital, provide a key means for improving access to water supply and sanitation.

Comment on "How Foreign Participation and Market Concentration Impact Bank Spreads: Evidence from Latin America"

During most of the 20th century, Latin American banking systems tended to be small, inefficient, and highly concentrated. Most were also characterized by regulatory barriers to entry. One component of these regulatory barriers was restrictions on the entry of foreign banks. Beginning in the early 1990s, most of the barriers to foreign investment in banking were lifted, and over time, foreign banks have come to play an increasingly larger role in most Latin American financial systems. Foreign banks now control roughly 45% of all Latin American bank assets. This change in ownership structure poses an interesting question for both academics and policy makers: what effect did the entry of foreign banks have on the spreads charged by banks? Did foreign banks increase competition and produce administrative innovations that reduced the gap between what banks paid for funds and charged for loans; or did the entry of foreign banks increase concentration, thereby allowing banks to behave less competitively? Answering this question requires careful econometric analysis. At the same time that foreign banks were entering, both creating de novo operations and purchasing existing banks, domestic banks were also merging with one another. Thus, independent of foreign bank entry, there was also an increase in concentration. In order to measure the independent impact of foreign bank entry, we need to be able to separate

Ownership Structure Changes in the Insurance Industry: An Analysis of Demutualization

AbstractThis article focuses on the demutualization process and investigates why certain mutuals undergo this organizational structure change. The primary motivation for conversion is access to capital. By statute, mutual firms are limited in their capital‐raising activities while stock firms can attract funds through a variety of stock and debt offerings. By examining the financial characteristics of firms that demutualize, changes in business practices in the years surrounding conversion can be observed. Determinants of the conversion decision are explored through logistic regression. In the years before demutualization, converting property‐liability mutuals exhibit significantly lower surplus‐to‐asset ratios. This capital constraint eases after demutualization. Converting life‐health mutuals hold a significantly lower proportion of liquid assets; in addition, they have a higher proportion of separate accounts under management. This liquidity constraint and increased focus on a higher managerial discretion activity drive the demutualization decision. For both property‐liability and life‐health converting mutuals, support for the access to capital hypothesis is found.

The Transformation of Ownership Policy and Structure in Sweden: Convergence towards the Anglo-Saxon Model?

We investigate the dramatic transformation of ownership policies and ownership structure in Sweden during the postwar period. After WWII, Swedish ownership policies were guided by a socialist vision where the ultimate goal was abolition of private ownership. These policies came to an end in the early 1980s. Since then a large number of Swedish firms have been acquired by foreign owners or merged with foreign firms and the foreign ownership share on the Swedish Stock Exchange has increased rapidly. A central question is whether this fast transformation is merely a logical consequence of current globalization, or whether this tendency has been reinforced by economic policies vis-a-vis the business sector in Sweden. We show that until the late 1980s, Swedish economic policy – aimed at discouraging wealth accumulation among households and favoring institutional ownership and debt financing – effectively precipitated the rapid takeover of the Swedish business sector by foreign owners that gained momentum in the 1990s. Policy measures intended to create a system of “capitalism without capitalists” can be said to have “packaged” large Swedish corporations in terms of ownership and financing structure, so that foreign takeover was facilitated. The article ends with a discussion as to whether the dramatic change in ownership structure in the Swedish business sector may result in the demise of the old corporatist model of industrial relations, giving way to a new trend towards a liberal market economy of the current Anglo-Saxon variety. JEL Classification: M13, N24, O38, P16.

Do Publicly Traded Firms Price Differently from Private Firms?

This article analyzes whether publicly traded firms price differently from privately held firms in the product markets. Our empirical evidence shows that, in the U.S. newspaper industry, firms increase their prices when their ownership structure changes from private to public. The effects are robust and significant. A plausible explanation is that private owners enjoy more freedom than public managers to expand circulation and distort content, pursuing the consumption of nonpecuniary benefits of control. Additional evidence is consistent with this interpretation. Public newspapers show lower prices when insiders' ownership participation is higher. Moreover, private newspapers appear more likely than public newspapers to endorse a candidate during presidential campaigns. To my knowledge there are no previous studies comparing pricing by private and public companies. Copyright 2003, Oxford University Press.

The Effect of IPOs on German Family–Owned Firms: Governance Changes, Ownership Structure, and Performance

Introduction Although initial public offerings (IPOs) recently have attracted public and academic attention, the special case of firms founded by families or single entrepreneurs has not been investigated in depth. Given the lack of empirical research on family-controlled businesses (McConaughy et al. 2001), this study is an attempt to remedy this deficiency. For family-owned firms, a change in ownership structure by going public is a significant change in the governance of the corporation, because for the first time outside shareholders come into play. This pattern typically is to be observed for IPOs of family-owned firms in Germany. (1) Our paper merges two strands of research: on the one hand, the entrepreneurial literature on family-controlled businesses, and on the other hand, the vastly increasing research on corporate governance and IPOs. After reviewing some of the related literature, we present empirical evidence about (1) the change in corporate governance (as proxied by a change in the ownership structure) following IPOs; and (2) its impact on the long-run stock performance of family-owned firms in Germany. We conclude with a summary of the major findings. Related Literature Franks and Mayer (2001) report that family business shareholdings account for one-third of total shareholdings in Germany. They argue that family investors, since their wealth is tied directly to that of the family firm, seem to exert strong disciplining of poorly performing management. For the U.S., Kang (2000) and McConaughy et al. (2001) find that family controlled firms have greater value and are operated more efficiently than other firms. In a recent article, Bhattacharya and Ravikumar (2001) show that the development of efficient capital markets accelerates the evolution and the sale of family businesses. Thus, the public sale of family-owned firms and their resulting performance is a topic of growing importance. In Germany there were at least three factors that prohibited founding families from selling their firms during our investigation period. First, tax regulation made the sale of privately held equity stakes less attractive. Although the profit on the sale of exchange-traded shares is tax-exempt after a holding period of one year, selling stakes in nonquoted companies is taxed at high rates. Second, low competition in the underwriting market and thereby high direct costs of an IPO led to capital-raising firms preferring Hausbank-financed debt or private placements. Three, German ideas on family values and the corporate mission of family-owned firms also resulted in many owners rather not taking public their firms (Schurmann and Korfgen 1997). Goergen and Renneboog (2001) provide a comparative study on the evolution of ownership and control in German and U.K. IPOs. They found that initial shareholders (including families) lose majority control on average six years after the IPO in Germany. However, in two-thirds of their sample of 52 German IPOs, initial shareholders retain absolute majority control, and the probability of retaining control concentration augments when nonvoting shares are issued. Goergen (1998) studied ownership retention in German and U.K. IPOs, the determinants of ownership retention, and its impact on IPO long-term performance. He found that the long-run performance of IPOs is not correlated with ownership retention. Overall, he suggests that the poor long-term performance of IPOs in his sample, compared to the stock market as a whole, cannot be explained by agency conflicts caused by the reduction in ownership by the original shareholders. We focus our attention on the strategic decisions of family-owners floating their firms. We restrict our analysis for the following reasons. First, family-owned firms have long been the most typical firms in Germany to undertake a change of ownership by means of an IPO. Second, a family-owned firm comes closest to one in which ownership and control are not separated until the IPO, making it ideal for investigating the performance effect of a change in the corporate governance structure. …

Alternative Explanations for Changes in Ownership Structure

The governance of the public limited company has been a continuing and mainstream interest of economists since Berle and Means [1932/1967] made the 'division of ownership from control' the central feature of their investigation into US-style capitalism. This concentration on the investor-owned public limited company, however, diverts attention from alternative forms of governance which have featured prominently in the past, at least in certain industries. As HANSMANN [1996] shows convincingly, organisations such as consumer and supply co-operatives, mutual organisations, non-profit enterprises and even workers' co-operatives have represented a significant part of the organisational landscape in the United States. Very similar observations can be made of the history of corporate enterprise in the UK (Ricketts [1999]). Changes in the ownership structure of companies have often accompanied economic development. These changes may be economy wide, as in the gradual substitution of the public limited company for the unlimited partnership or private company during the late 19th and 20th centuries. Changes may take place in particular industries or sectors as in the recent trend away from mutual governance in parts of the financial services sector in the UK. PENCAVEL [2001] studies the rise of worker co-operatives in the plywood industry in the Pacific Northwest of the United States after the First World War, and their subsequent decline after the 1950s as the main centres of production moved elsewhere. Competition between governance arrangements does not occur entirely through the processes of new firm formation and bankruptcy, however, but also through changes to the governance structures of individual firms. Scottish Mutual, a Life Insurance Company in the UK, for example, was established as a proprietary company in 1883. It became a mutual company in 1952 by Private Act of Parliament, but then demutualised in 1991 and was acquired by Abbey National (itself a recently demutualised Building Society)1 . In some periods

Corporate growth factors with a review of our environment

Traditional enterprise in transition is, by its organizational and functional structure, as well as by its fundamental function, inadequate for the market economy. It is clumsy, it has hierarchical organization, it is slowly and inert not reacting to the impulses from the environment. Therefore, it is necessary to create completely new contents, based on the assumption that enterprise can be revitalized-restructured. The focus of goals in the enterprises is changing in time and it moves from one problem to another. By restructuring enterprise has to accomplish its integral transformation. Restructuring has to, according to our opinion, include: 1. Change of ownership structure; 2. creation of new-concept of leadership and management; 3. restructuring of assortment; 4. changes in organization; 5. create of new concept of business functions. In all that 9 factors of business development play the most important role.

Corporate Governance and Ownership Structure in the Transition: The Current State of Knowledge and Where to Go from Here

The purpose of the paper is to present the current state of knowledge on both theoretical models and empirical evidence of interrelations between emerging corporate governance mechanisms and ownership structure of privatized enterprises in post- Communist countries. Section 2 contains extensive literature review on the subject. In Section 3, the results of the research coordinated by CASE on post-privatization changes in ownership structure of Polish, Czech and Slovenian enterprises are presented. In Section 4, the Authors present conclusions and a few suggestions for policy makers.