Clifford G. Holderness is Professor of Finance at the Carroll School of Management at Boston College. This post is based on a forthcoming article by Professor Holderness. Related research from the Program on Corporate Governance includes The “Antidirector Rights Index” Revisited by Holger Spamann.
One of the most influential findings from the law and finance literature is that large-percentage shareholders in public corporations are a response to weak legal protections for public market investors. This theory was initially proposed in La Porta, Lopez-de-Silanes, Shleifer, and Vishny (1998) and has been confirmed and refined by the same researchers and others. The theory serves as a cornerstone for many analyses and recommendations in corporate governance. The belief is that when legal protections for public market investors are weak, stock ownership will be concentrated.
In Law and Ownership Reexamined I reexamine the relation between investors’ legal protections and ownership concentration and find no evidence of any relationship, either negative or positive. Although ownership concentration varies widely both within and across countries, there is no evidence that these differences reflect legal differences.
