Resource title

Diversification and ownership concentration

Resource image

image for OpenScout resource :: Diversification and ownership concentration

Resource description

We consider a mean-variance general equilibrium economy where the expected returns for controlling and non-controlling shareholders are different because the former are able to divert a fraction of the profits. We find that when investor protection is poor, asset return correlation affects ownership structure in a positive way. Higher return correlation lowers the benefits of diversification which causes a higher investment by the controlling shareholder in his asset and a lower investment by the non-controlling shareholders. The empirical analysis supports the predictions of the model. In particular, controlling for measures of the quality of the investor protection, the legal origin of the countries, and other structural variables as in a previous study by La Porta et al. (1998) we find that equity ownership is significantly more concentrated in countries where stock return correlation is higher, and that the magnitude of this effect is larger in countries where investor protection is poorer.

Resource author

Bruno Maria Parigi, Loriana Pelizzon

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/19054

Resource license

Adapt according to the presented license agreement and reference the original author.