Ownership Evolution and Regulation

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Ownership: Evolution and Regulation
Julian Franks London Business School Centre for Corporate Governance, CEPR, and ECGI Colin Mayer Sa¨d Business School, University of Oxford, CEPR, and ECGI ı Stefano Rossi Stockholm School of Economics Downloaded from http://rfs.oxfordjournals.org/ at University of Bristol Library on February 4, 2013

This article is the first study of long-run evolution of investor protection and corporate ownership in the United Kingdom over the twentieth century. Formal investor protection emerged only in the second half of the century. We assess the influence of investor protection on ownership by comparing cross-sections of firms at different times in the century and the evolution of firms incorporating at different stages of the century. Investor protection had little impact on dispersion of ownership: even in the absence of investor protection, rates of dispersion of ownership were high, associated primarily with mergers. Preliminary evidence suggests that ownership dispersion in the United Kingdom relied more on informal relations of trust than on formal investor protection. (JEL G32, G34)

One of the best-established stylized facts about corporate ownership is that ownership of large listed companies is dispersed in the United Kingdom and the United States and concentrated in most other countries. For example, Becht and Mayer (2001) report that more than 50% of European companies have a single voting block of shareholders that commands a majority of shares. In contrast, in the United Kingdom and the United States fewer than 3% of companies have such blocks.

We are grateful for helpful suggestions from participants at conferences at the American Finance Association meetings in Washington, D.C., January 2003; the National Bureau of Economic Research Programme on the Evolution of Family Ownership conferences in Boston, INSEAD, and Lake Louise; the Political Economy of Financial Markets Conference at Princeton, September 2003; the RIETI Conference on Comparative Corporate Governance: Changing Profiles of National Diversity in Tokyo, January 2003; the NBER Summer Institute Corporate Finance Workshop 2004; the Western Finance Association meetings in Vancouver, June 2004; the European Finance Association meetings in Maastricht, August 2004; and at seminars at the Bank of England, the Bank of Italy, Cambridge University, the London Business School, the London School of Economics, Northwestern University, SNS, Stockholm, the Stern School, New York University, Universit´ Libre de Bruxelles, e University of Bologna, and UCLA. We have received helpful comments from Michael Weisbach (the editor), an anonymous referee, and Brian Cheffins, Barry Eichengreen, Nadja Guenster, Charles Hadlock, Leslie Hannah, Oliver Hart, Cliff Holderness, Gregory Jackson, Kose John, Hideaki Miyajima, Randall Morck, Luc Renneboog, Mark Roe, David Scharfstein, Hyun Song Shin, Jeremy Stein, Oren Sussman, Elu von Thadden, Xavier Vives, Ralph Walkling, and Yishay Yafeh. Georgy Chabakaury, Shamoon Chaudry, Raju Chinthalapati, Leonardo Cordeiro, and Lisa Lernborg provided excellent research assistance. Send correspondence to Julian Franks, London Business School, Sussex Place, Regent’s Park, London NW1 SA, United Kingdom; telephone: +44(0)20-7000-8261. E-mail: jfranks@london.edu. C The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org. doi:10.1093/rfs/hhn108 Advance Access publication December 23, 2008

The Review of Financial Studies / v 22 n 10 2009

Two prominent theories of regulation and law have been proposed to explain this difference. The first, attributable to Mark Roe (1994), is that U.S. legislators responded to a populist agenda in the 1930s by limiting the power exercised by large financial conglomerates. This was accomplished by introducing legislation that restricted the control...
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