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Corporate Control with Cross-Ownership

Author

Listed:
  • Marc Levy
  • Ariane Szafarz

Abstract

Cross-ownership breaks the traditional rule of one-sided corporate control. Using a novel approach based on stochastic voting processes, this paper proposes a general method to determine control stakes in the presence of cross-ownership. It offers a generalization of the Banzhaf index, which allows coping with cross-ownership-inclusive ownership graphs. The original feature of this approach is its absolute sequentiality. We also operationalize this new approach by building an algorithm, which determines the shareholders’ respective control powers in any corporate structure. From a governance viewpoint, we emphasize that cross-ownership may act as a powerful device for shareholders’ expropriation. To make this point, we revisit the leading example of the German Allianz Group.

Suggested Citation

  • Marc Levy & Ariane Szafarz, 2011. "Corporate Control with Cross-Ownership," Working Papers CEB 11-053, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:sol:wpaper:2013/101958
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    References listed on IDEAS

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    1. Malueg, David A., 1992. "Collusive behavior and partial ownership of rivals," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 27-34, March.
    2. Marc Levy, 2006. "Control in Pyramidal Structures," Working Papers CEB 06-023.RS, ULB -- Universite Libre de Bruxelles.
    3. T. Biebuyck & Ariane Chapelle & Ariane Szafarz, 2002. "Les leviers de contrôle des actionnaires majoritaires," Working Papers CEB 03-001.RS, ULB -- Universite Libre de Bruxelles.
    4. Ariane Chapelle, 2001. "Corporate governance en Belgique: l'effet des pyramides," ULB Institutional Repository 2013/9933, ULB -- Universite Libre de Bruxelles.
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    6. Zingales, Luigi, 1994. "The Value of the Voting Right: A Study of the Milan Stock Exchange Experience," The Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 125-148.
    7. Chapelle, Ariane & Szafarz, Ariane, 2005. "Controlling firms through the majority voting rule," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 355(2), pages 509-529.
    8. Levy, Marc, 2011. "The Banzhaf index in complete and incomplete shareholding structures: A new algorithm," European Journal of Operational Research, Elsevier, vol. 215(2), pages 411-421, December.
    9. Lucian A. Bebchuk & Reinier Kraakman & George Triantis, 2000. "Stock Pyramids, Cross-Ownership, and Dual Class Equity: The Mechanisms and Agency Costs of Separating Control from Cash-Flow Rights," NBER Chapters, in: Concentrated Corporate Ownership, pages 295-318, National Bureau of Economic Research, Inc.
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    13. Brioschi, Francesco & Buzzacchi, Luigi & Colombo, Massimo G., 1989. "Risk capital financing and the separation of ownership and control in business groups," Journal of Banking & Finance, Elsevier, vol. 13(4-5), pages 747-772, September.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    ownership and control; cross-ownership; tunneling; Banzhaf index; Allianz group;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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