Gur Aminadav is a Finance & Research Advisor at the London Business School; and Elias Papaioannou is Professor of Economics at the London Business School and the Hal Varian Visiting Professor at MIT Department of Economics. The post is based on their recent article, forthcoming in the Journal of Finance.
Understanding the driving forces and consequences of the various types of corporate control are core inquiries of corporate finance. While most economics and legal theory distinguishes between widely-held corporations with dispersed ownership and controlled firms where a dominant shareholder exerts control, corporate structures are complex. Pyramids that allow shareholders to influence decisions over their cash-flow rights and cross-holdings of equity in business groups are pervasive. Moreover, ownership and control are often hidden behind shell companies incorporated in off-shore centers. Equity blocks—that entail some controlling rights—are commonplace, even in companies that most would coin as widely-held.
In a series of influential works Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert Vishny (1997, 1998, 1999) tried to bridge economics and law research, compiling data on ownership concentration, corporate control, and legal protection of investors for a large number of countries. The subsequent voluminous literature on law and finance explores the role of the legal tradition, imposed by colonial powers, as well as corporate law, shareholder and creditor protection, securities legislation, and regulatory features on corporate control and finance (see La Porta, Lopez-de-Silanes, and Sheifer (2006) for an overview).
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