Ultimate Shareholders Research Articles

Controlling Firms Through the Majority Voting Rule

Pyramids, cross-ownership, rings and other complex features inducing control tunnelling are frequent in the European and Asian industrial world. Based on the matrix methodology, this paper offers a model for measuring integrated ownership and threshold-based control, applicable to any group of interrelated firms. In line with the theory on pyramidal control, the model avoids the double counting problem and sets the full-control threshold at the conservative - but incontestable - majority level of 50% of the voting shares. Any lower threshold leads to potential inconsistencies and leaves unexplained the observed high level of ownership of many dominant shareholders. Furthermore, the models leads to ultimate shareholders' control ratios consistent with the majority voting rule. Finally, it is applied to the Frere Group, a large European pyramidal holding company known for mastering control leverages.

Sub-Optimal Acquisition Decisions under a Majority Shareholder System

The high separation of ownership from control achieved through the concurrent use of non-voting shares and stock pyramiding could favor acquisitions made to increase private benefits of the controlling shareholders rather than all shareholders’ wealth. A standard event study methodology is carried out on three different samples of Italian acquisitions during the 1989–1996 period in order to test this hypothesis. We find evidence that a worse market reaction characterizes acquiring firms with a higher separation of ownership from control, while more value-enhancing transactions are undertaken by those smaller in size and with higher prior-performance. An entrenchment effect seems to determine a significant U-shaped relationship between the market reaction and the ultimate shareholder ownership. When the sample is restricted to acquiring firms with a dual class equity structure we find that non-voting shares report significantly negative excess returns in contrast to significantly higher positive returns for voting shares. Such evidence seems to indicate that the average acquisition has been overpaid, as suggested by the negative market reaction of the non-voting shares, while it was expected to lead to higher private benefits to the majority shareholders, as suggested by the revaluation of the voting shares. Finally, the market reaction to acquisitions made within pyramidal groups seems to indicate that the price is set so as to transfer wealth towards the companies located at the upper levels, where majority shareholders own greater fractions of the companies’ cash flows.

Managing intellectual capital to grow shareholder value

Increasingly, knowledge is being shared, but is it being exploited to generate additional income streams and grow shareholder value? This article examines how 51 companies that generate around £9.3 billion in revenues from their know-how are managing 20 different categories of intellectual capital. Their experience suggests that boards need to increase the proportion of people who are creating, packaging and exploiting know-how and ensure various forms of knowledge from designs, websites, patents and copyrights to processes, skills and customer and supplier relationships are being fairly valued, fully exploited and converted into profit and ultimate shareholder wealth.

Let’s Regulate Investment Advice

Although the quality of professional security analysis and portfolio management varies widely, the ultimate shareholder or beneficiary in whose behalf professional portfolio managers buy and sell pension fund, mutual fund and endowment fund assets has no way of assuring himself that trading and policy decisions are really competent. He may be hurt, rather than helped, by these decisions. Brokers, to be sure, are required to demonstrate simple qualifications, including successful negotiation of a written exam. But other sources of investment advice are virtually unregulated.