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The Case for Mandatory Ownership Disclosure

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Author Info
Schouten, Michael C.

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Abstract

The use of equity derivatives to conceal economic ownership of shares (“hidden ownership”) is increasingly drawing attention from the financial community, as is the exercise of voting power without corresponding economic interest (“empty voting”). Market participants and commentators have called for expansion of ownership disclosure rules, and policymakers on both sides of the Atlantic are now contemplating how to respond. Yet, in order to design appropriate responses it is key to understand why we have ownership disclosure rules in the first place. This understanding currently appears to be lacking, which may explain why we observe divergent approaches between countries. The case for mandatory ownership disclosure has also received remarkably little attention in the literature, which has focused almost exclusively on mandatory issuer disclosure. Perhaps this is because most people assume that ownership disclosure is a good thing. But why is such information important, and to whom? This paper aims to answer these fundamental questions, using the European disclosure regime as an example. First, the paper identifies two main objectives of ownership disclosure: improving market efficiency and corporate governance. Next, the paper explores the various mechanisms through which ownership disclosure performs these tasks. This sets the stage for an analysis of hidden ownership and empty voting that demonstrates why these phenomena are so problematic.

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14139.

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Date of creation: 08 Mar 2009
Date of revision: 27 Apr 2009
Handle: RePEc:pra:mprapa:14139

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Related research
Keywords: ownership disclosure; market efficiency; corporate governance; monitoring; hidden ownership; empty voting; hedge fund activism;

Other versions of this item:

Find related papers by JEL classification:
K20 - Law and Economics - - Regulation and Business Law - - - General
G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
K22 - Law and Economics - - Regulation and Business Law - - - Corporation and Securities Law
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G30 - Financial Economics - - Corporate Finance and Governance - - - General

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References listed on IDEAS
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  3. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, Blackwell Publishing Ltd, vol. 9(1), pages 25-66. [Downloadable!] (restricted)
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  4. Thomsen, Steen & Pedersen, Torben & Kvist, Hans Kurt, 2006. "Blockholder ownership: Effects on firm value in market and control based governance systems," Journal of Corporate Finance, Elsevier, vol. 12(2), pages 246-269, January. [Downloadable!] (restricted)
  5. Roberta Romano, 1998. "Empowering Investors: A Market Approach to Securities Regulation," Yale School of Management Working Papers ysm74, Yale School of Management. [Downloadable!]
  6. Alexander Dyck & Luigi Zingales, 2004. "Private Benefits of Control: An International Comparison," Journal of Finance, American Finance Association, vol. 59(2), pages 537-600, 04. [Downloadable!] (restricted)
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  7. Susan E.K. Christoffersen & Christopher C. Geczy & David K. Musto & Adam V. Reed, 2007. "Vote Trading and Information Aggregation," Journal of Finance, American Finance Association, vol. 62(6), pages 2897-2929, December. [Downloadable!] (restricted)
  8. Bozcuk, Aslihan & Lasfer, M. Ameziane, 2005. "The Information Content of Institutional Trades on the London Stock Exchange," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(03), pages 621-644, September. [Downloadable!]
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