nep-bec New Economics Papers
on Business Economics
Issue of 2006‒02‒05
29 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Lifecycle Asset Allocation Strategies and the Distribution of 401(k) Retirement Wealth By James Poterba; Joshua Rauh; Steven Venti; David Wise
  2. False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas. By Olivier Scaillet; Laurent Barras; Russell R. Wermers
  3. Global Links: Long-term Trends in Foreign Investment and Foreign Control in Canada, 1960 to 2000 By Baldwin, John R.; Gellatly, Guy
  4. Diagnosing Discrimination: Stock Returns and CEO Gender By Justin Wolfers
  6. Survival Chances of Start-Ups - do Regional Conditions Matter? By Oliver Falck
  7. A firm-level analysis of differences between adopters and non-adopters of ICT By José Alberto Bayo-Moriones; Gilberto Carvalho-Vasconcelos; Fernando Lera-López
  8. Co-production on the Edge of Project and Process Management - The Sijtwende development project By Jurian Edelenbos; Geert Teisman
  9. Who controls the looking glass? Towards a conversational understanding of organizational theatre By Meisiek, Stefan; Barry, David
  10. Mutual Monitoring versus Incentive Pay in Teams By Nikolova, Radoslava
  11. The effect of organizational innovation and information technology on firm performance By Gu, Wulong; Gera, Surendra
  12. Who trains? High-tech industries or high-tech workplaces? By Chowhan, James
  13. Do Canadians pay more than Americans for the same products? By Baldwin, John R.; Yan, Beiling
  14. Canada's trade with China By Roy, Francine
  15. Four decades of creative destruction: renewing Canada's manufacturing base from 1961-1999 By Baldwin, John R.; Brown, Mark
  16. The output gap between Canada and the United States: the role of productivity (1994-2002) By Baldwin, John R.; Maynard, Jean-Pierre; Wong, Fanny
  17. Corporate financial leverage in Canadian manufacturing: consequences for employment and inventories By Heisz, Andrew; Larochelle-Côté, Sébastien
  18. Factors determining the success or failure of Canadian establishments on foreign markets: a survival analysis approach By Bosco Sabuhoro, Jean; Gervais, Yvan
  19. Are good jobs disappearing in Canada? By Johnson, Anick; Morissette, René
  20. The effect of changing technology use on plant performance in the Canadian manufacturing sector By Baldwin, John R.; Sabourin, David
  21. Innovation, survival and performance of Canadian manufacturing plants By Baldwin, John R.; Gu, Wulong
  22. Profitability of Canadian- versus U.S.-controlled enterprises By Warren, Paul
  23. Demand for Skills in Canada: The Role of Foreign Outsourcing and Information-Communication Technology By Yan, Beiling
  25. Ownership Structure and Asset Sales: An Empirical Analysis By Michael J. Bennett
  26. The determinants of venture capital: A Panel Data Analysis of 16 OECD Countries By Astrid Romain; Bruno Van Pottelsberghe
  27. Asset Return Correlation in Basel II: Implications for Credit Risk Management. By Marie-Paule Laurent
  28. What Value Leaders Do? By Venkat Subramanian; Paul Verdin
  29. Controlling firms through the Majority Voting Rule. By Ariane Chapelle; Ariane Szafarz

  1. By: James Poterba; Joshua Rauh; Steven Venti; David Wise
    Abstract: This paper examines how different asset allocation strategies over the course of a worker's career affect the distribution of retirement wealth and the expected utility of wealth at retirement. It considers both rules that allocate a constant portfolio fraction to various assets at all ages, as well as "lifecycle" rules that vary the mix of portfolio assets as the worker ages. The analysis simulates retirement wealth using asset returns that are drawn from the historical return distribution. The results suggest that the distribution of retirement wealth associated with typical lifecycle investment strategies is similar to that from age-invariant asset allocation strategies that set the equity share of the portfolio equal to the average equity share in the lifecycle strategies. There is substantial variation across workers with different characteristics in the expected utility from following different asset allocation strategies. The expected utility associated with different 401(k) asset allocation strategies, and the ranking of these strategies, is very sensitive to three parameters: the expected return on corporate stock, the worker's relative risk aversion, and the amount of non-401(k) wealth that the worker will have available at retirement. At modest levels of risk aversion, or in the presence of substantial non-401(k) wealth at retirement, the historical pattern of stock and bond returns implies that the expected utility of an all-stock investment allocation rule is greater than that from any of the more conservative strategies. Higher risk aversion or lower expected returns on stocks raise the expected utility of following lifecycle strategies or other strategies that reduce equity exposure throughout the lifetime.
    JEL: J14 J32 G11 G23
    Date: 2006–01
  2. By: Olivier Scaillet (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and HEC, Genève, Suisse); Laurent Barras (HEC, Genève, Suisse); Russell R. Wermers (University of Maryland - Robert H. Smith School of Business, Department of Finance)
    Abstract: Standard tests designed to identify mutual funds with non-zero alphas are problematic, in that they do not adequately account for the presence of lucky funds. Lucky funds have significant estimated alphas, while their true alphas are equal to zero. To address this issue, this paper quantifies the impact of luck with new measures built on the False Discovery Rate (FDR). These FDR measures provide a simple way to compute the proportion of funds with genuine positive or negative performance as well as their location in the cross-sectional alpha distribution. Using a large cross-section of U.S. domestic-equity funds, we find that about one fifth of the funds in the population truly yield negative alphas. These funds are dispersed in the left tail of the alpha distribution. We also find a small proportion of funds with truly positive performance, which are concentrated in the extreme right tail of the alpha distribution.
    Keywords: Mutual Fund Per formance, False Discovery Rate, Multiple Testing.
    JEL: G11 G23 C12
    Date: 2005–11
  3. By: Baldwin, John R.; Gellatly, Guy
    Abstract: This paper outlines broad changes in foreign ownership in Canada over the last forty years. It makes use of several different but complementary data sources that are produced by Statistics Canada to analyze the importance of foreign ownership in Canada. Over the last four decades, foreign multinationals that are operating in Canada have experienced first, a retrenchment and then, a resurgence in their activities. This retrenchment occurred during the period when foreign investment was tightly regulated and could be found across most industries, but was particularly evident in the energy and mining sector. The resurgence that has occurred subsequent to the introduction of a more liberal regulatory regime was also relatively widespread, though there are several sectors like the science-based and energy industries where this has not occurred.
    Keywords: Business enterprises, Business conditions
    Date: 2005–11–18
  4. By: Justin Wolfers (Wharton School, University of Pennsylvania, CEPR, NBER and IZA Bonn)
    Abstract: A vast labor literature has found evidence of a "glass ceiling", whereby women are underrepresented among senior management. A key question remains the extent to which this reflects unobserved differences in productivity, preferences, prejudice, or systematically biased beliefs about the ability of female managers. Disentangling these theories would require data on productivity, on the preferences of those who interact with managers, and on perceptions of productivity. Financial markets provide continuous measures of the market’s perception of the value of firms, taking account of the beliefs of market participants about the ability of the men and women in senior management. As such, financial data hold the promise of potentially providing insight into the presence of mistake-based discrimination. Specifically if female-headed firms were systematically under-estimated, this would suggest that female-headed firms would outperform expectations, yielding excess returns. Examining data on S&P 1500 firms over the period 1992-2004 I find no systematic differences in returns to holding stock in female-headed firms, although this result reflects the weak statistical power of our test, rather than a strong inference that financial markets either do or do not under-estimate female CEOs.
    Keywords: discrimination, CEOs, chief executive officer, event study, statistical discrimination, excess returns, female CEOs
    JEL: G14 G3 J16 J4 J7 K31 M5
    Date: 2006–01
  5. By: Raquel Ortega-Argilés; Rosina Moreno
    Abstract: This paper, based on the ideas of Jovanovic’s theory (1982), analyses the impact of the main strategies determining the competitive behaviour of firms on their survival rate. We consider those strategies related both to product and price differentiation. Among the former ones, one may think of the specific differentiation due to advertisement and patent expenses or the technological differentiation based on R&D expenses or new production processes. Among the strategies of the second group, some are based on capital accumulation, or advantages of fixed costs such as scale economies or absolute cost advantages thanks to production techniques introduced by experience of by process innovations. The use of these strategies in a set of Spanish manufacturing firms (1990-2001) is analyzed. Firstly, several non-parametric tests for equality of survival functions are computed to check the diversity of survival rates across different competitive characteristics of firms. Secondly, a duration model based on a hazard rate model is estimated to study the impact of the main competitive strategies on firm survival. We find that several aspects on the competitive advantage of the firms play an important role in the likelihood of firm survival. Finally, we also conclude that there exists a different competitive strategy having into account two different size groups of firms.
    Date: 2005–08
  6. By: Oliver Falck
    Abstract: This paper analyses the effect of industry, regional and firm level characteristics on the post entry performance of newly founded businesses by means of an econometric survival time model. First preference is given to an accelerated failure time model assuming a log-logistic distribution. The dataset involves a representative sample of establishments in the private sector provided by the Institute for Employment Research (IAB). The data relates to West German states during 1993-2002 period. A start-up’s The likelihood of failure tends to be relatively high in industries characterized by a high minimum efficient size and high numbers of entries. The regional dimension has a considerable impact upon improvements of estimation results. On the firm level, the size of the firm seems to be the best predictor for the likelihood of failure.
    Date: 2005–08
  7. By: José Alberto Bayo-Moriones; Gilberto Carvalho-Vasconcelos; Fernando Lera-López
    Abstract: Information and Communication Technologies investments have drastically modified the competitive markets due to the impact on firm performance and productivity. This paper aims to analyse the differences between ICT adopter firms and non-adopter firms. OLS regressions and ordered logit models provide the methodological approach. From data based on a questionnaire survey to 327 Spanish firms in 2002, the empirical results indicate the essential role played by some variables in the ICT adoption. The results confirm, for example, the influence of variables such as firm size. The role of human capital and competitive strategies based on product and service quality are relevant in ICT adoption. The paper is organised as follows. First, the section 1 introduces the paper. The section 2 provides the establishment and explanation of the theoretical hypotheses. This section is followed in the section 3 by the methodology adopted in this study, including both the model and the data sources employed in the estimations. Some basic statistics and the results of the model estimations are presented and interpreted in the penultimate section, before concluding the paper with some remarks on the findings and important implications in the ICT adoption
    Date: 2005–08
  8. By: Jurian Edelenbos; Geert Teisman
    Abstract: The goal of this paper is to describe and analyze co-production in public private partnerships in spatial planning. We will describe one specific case study, the location development project Sijtwende on the edge of two municipalities (The Hague and Voorburg), on the edge of public and private investments and on the edge of urban development and extension of the mobility system. We will elaborate the bottlenecks in the cooperation between several actors involved. Furthermore we will look for important breakthroughs in the process of collaborative development of the area. How was it possible that after a public lock in situation that took more than twenty years a private party was able to force a breakthrough? Finally we will deal with the question what this case learns us for the management of these complex processes of co-production. We will combine theoretical thoughts and empirical insights from our in-depth case study in order to find balances in using project management and process management strategies for managing complex spatial planning processes.
    Date: 2005–08
  9. By: Meisiek, Stefan; Barry, David
    Abstract: This paper presents a longitudinal study of interactive organizational theatre. Managers of a large home care organization used 30 instances of organizational theatre over a one year period to effect organizational change. We found that neither management, who had hoped that employees would accept and internalize the messages accompanying the play, nor employees, who used the liminal spaces to express their own take on the organization’s issues, achieved their aims directly. Yet a year later, organizational performance and satisfaction were significantly improved—much of this was attributed to the play. To explain this, we develop a conversational theory of change, one where ‘conversation pieces’ are central. We also speculate on the properties that conversation pieces and conversational systems like organizational theatre must have if they are to effect change.
    Keywords: organizational change, organizational theatre, liminality, conversation piece
    Date: 2005
  10. By: Nikolova, Radoslava
    Abstract: In a principal - multi-agent relationship, we derive the optimal mutual monitoring - incentive pay mix. When agents are better informed about their effort choices than the principal, and when their information is suffciently "good" there is a substituability between those two modes of providing incentives. However the optimal mix will depend on the liability limit of the agents. Thus when it is suffciently slack the principal uses stronger incentive pay and less mutual monitoring. We derive the conditions for the adoption of costly supervisory technology. We finish by comparing two possible organizational structures: delegation with unilateral supervision versus mutual monitoring.
    Keywords: Principal - Multi-agents, Side contracting, Mutual Monitoring
    JEL: L2 J31 J33
    Date: 2005
  11. By: Gu, Wulong; Gera, Surendra
    Abstract: This paper examines the issue of whether investment in information and communication technologies, combined with organizational changes and worker skills, contribute to better performance in Canadian firms.
    Keywords: Labour, Science and technology, Business enterprises, Employees, Innovation, Business conditions
    Date: 2004–11–12
  12. By: Chowhan, James
    Abstract: The growth in micro-technologies and their widespread diffusion across economic sectors have given rise to what is often described as a New Economy - an economy in which competitive prospects are closely aligned with the firm's innovation and technology practices, and its use of skilled workers. Training is one strategy that many firms undertake in order to improve the quality of their workforce. This study contributes to the expanding body of research in the area of information and communication technologies (ICT). Using data on business sector workplaces from the 1999 Workplace and Employee Survey (WES), we investigate factors related to the incidence and intensity of training. The study focuses on whether training incidence and training intensity are more closely associated with the technological competencies of specific workplaces than with membership in ICT and science-based industry environments. The study finds that training incidence depends more on the technological competencies exhibited by individual workplaces. Among workplaces that decide to train, these technological competencies are also important determinants of the intensity of training. Workplaces which score highly on our index of technological competency are over three times more likely to train than those that rank zero on the competency index. The size of the workplace is also a factor. Large and medium-sized workplaces are 3 and 2.3 times more likely to train than small workplaces, respectively. And workplaces with higher-skilled workforces are more likely to train than workplaces with lower-skilled workforces. For workplaces that choose to train, their technological competency is the main determinant of training intensity. The size of the workplace, the average cost of training, and the skill level of the workforce are also influential factors'but to a lesser extent. Other factors, such as sector, outside sources of funding, and unionization status, are not influential facto
    Keywords: Business enterprises, Education, Science and technology, Type of business, Training, Information technology
    Date: 2005–01–25
  13. By: Baldwin, John R.; Yan, Beiling
    Abstract: The paper examines whether Canadians were paying more than the Americans for the goods and services they purchase, based on more than 160 product price data for each of the five years under study (1985, 1990, 1993, 1996, 1999).
    Keywords: Prices and price indexes, Prices
    Date: 2004–04–27
  14. By: Roy, Francine
    Abstract: This article documents the evolution of Canada's trade with China over the last 15 years in the context of the broad shifts in China's trade with the world.
    Keywords: Trade, Exports, International trade, Imports
    Date: 2004–06–08
  15. By: Baldwin, John R.; Brown, Mark
    Abstract: This paper measures the extent of economic renewal in Canada's manufacturing sector over a four-decade period, 1961 to 1999, which roughly represents the productive lifetime of a worker.
    Keywords: National accounts, Manufacturing, Business enterprises, Economic conditions, Manufacturing industries, Business conditions
    Date: 2004–10–21
  16. By: Baldwin, John R.; Maynard, Jean-Pierre; Wong, Fanny
    Abstract: The difference in the output gap (GDP per capita) between Canada and the United States is broken down into two components - differences in productivity (GDP per hour worked) and differences in effort (hours worked per capita) for the period 1994 to 2002. The paper shows that, on average, the majority of the output gap is accounted for by differences in hours worked rather than differences in productivity. Since 1994, the output gap has narrowed slightly, primarily because of an increase in hours worked in Canada relative to the United States.
    Keywords: National accounts, Gross domestic product
    Date: 2005–01–13
  17. By: Heisz, Andrew; Larochelle-Côté, Sébastien
    Abstract: This paper investigates the link between financial structure and employment growth, and the link between financial structure and inventory growth, among incorporated Canadian manufacturers from 1988 to 1997. It finds that financially vulnerable firms - smaller firms and those with higher leverage - shed nearly 10% more labour than financially healthier firms for a given drop in product demand. The influence was larger during the recession of 1990 to 1992 indicating that higher financial vulnerability, reflected in high leverage, may have worsened during that period. The influence was also greater in sectors that experienced larger cyclical fluctuations. On average, firms with high leverage also tend to cut inventories 5% more when a shock in demand occurs.
    Keywords: Business enterprises, Labour, Manufacturing, Business finance, Employment, Manufacturing industries, Business conditions
    Date: 2004–02–18
  18. By: Bosco Sabuhoro, Jean; Gervais, Yvan
    Abstract: This paper uses the 1993 to 2000 Exporter Registry of Statistics Canada to study the factors determining the success or exit of Canadian establishments on foreign markets. The survival analysis model is adopted to study the survival and hazard rates of exporting establishments, with the Cox proportional hazards regression used for the econometric analysis.
    Keywords: Trade, Exports
    Date: 2004–05–05
  19. By: Johnson, Anick; Morissette, René
    Abstract: Using hourly wage data from the Labour Force Survey as well as previous household surveys covering the 1981-2004 period, we assess whether the relative importance of low-paid jobs and well-paid jobs has changed over the last two decades. Since it is unclear whether trends in wage levels obtained from all the aforementioned surveys are unbiased, we refrain from making definitive statements regarding the evolution of low-paid and well-paid jobs over the 1981-2004 period. When assessing whether well-paid jobs are disappearing in Canada, we focus our attention on recent trends, i.e. on changes in the fraction of jobs falling in certain (real) wage categories during the 1997-2004 period. We find little evidence that the relative importance of well-paid jobs - however defined - has fallen over the last two decades or since the second half of the 1990s. We also find little evidence that the relative importance of low-paid jobs, those paying less than $10.00 per hour, has risen during these two periods. We show, along with numerous previous studies, that the wage gap between young workers and their older counterparts has risen substantially over the last two decades but that the wage gap between university graduates and other workers has shown little change. More important, we show that, within age groups, wages of newly hired male and female employees - those with two years of seniority or less - have fallen substantially relative to those of others. Second, in the private sector, the fraction of new employees employed in temporary jobs has risen substantially, increasing from 11% in 1989 to 21% in 2004. Among employees with one year of seniority or less, the incidence of temporary work rose from 14% in 1989 to 25% in 2004. Third, pension coverage has fallen among men of all ages and among females under 45. Taken together, these findings suggest that Canadian firms (existing or newly-born) have responded to growing competition within industries and from abroad by re
    Keywords: Labour, Employment, Salaries and wages
    Date: 2005–01–26
  20. By: Baldwin, John R.; Sabourin, David
    Abstract: This paper investigates how changes in technology use of individual plants in the Canadian manufacturing sector are related to two measures of performance --productivity growth and market-share growth.
    Keywords: National accounts, Manufacturing, Productivity, Manufacturing industries
    Date: 2004–07–27
  21. By: Baldwin, John R.; Gu, Wulong
    Abstract: This paper examines the determinants of innovation and the role of innovation in productivity growth, shifts in market share and survival in the Canadian manufacturing sector. It presents a model that examines the effect of innovation on plant performance and plant survival.
    Keywords: National accounts, Science and technology, Manufacturing, Productivity, Innovation, Manufacturing industries
    Date: 2004–09–21
  22. By: Warren, Paul
    Abstract: This paper examines the course of profitability of large Canadian-resident enterprises over the period 1990-98. It focuses first on the differences in the profitability of Canadian-controlled and U.S.-controlled enterprises and asks whether there are differences in trends in profitability by country of ownership over the business cycle experienced in the 1990s. It uses micro-economic data on the profitability of large non-integrated firms to investigate the role played by market share in determining profitability in each group and the extent to which profits that deviate from the mean are forced quickly or slowly back to their long-run equilibrium values. Both facets of profit behaviour are related to the nature of competition in the markets served by firms. Finally, it examines the role played by changes in the Canada-U.S. exchange rate in determining profitability in order to understand the extent to which each group uses these changes to adjust their foreign prices and thus to affect reported Canadian profits.
    Keywords: National accounts, Business enterprises, Economic conditions, Business conditions
    Date: 2005–03–03
  23. By: Yan, Beiling
    Abstract: This study examines the impact of information and communication technologies (ICT) and of foreign outsourcing on the demand for skilled workers. One of the defining features of the Canadian economy in the last two decades has been an increasing wage gap between more- and less-skilled workers. Over the same period, there have been dramatic increases in expenditures on information and communication technologies and in purchases of foreign intermediate inputs. Using data for 84 Canadian manufacturing industries over the 1981-1996 period, we find that both ICT and foreign outsourcing are important contributors to the demand for skills.
    Keywords: Labour, Science and technology, Employees, Information technology
    Date: 2005–10–28
  24. By: Amparo Nagore (Universitat de València); Joaquín Maudos Villarroya (Instituto Valenciano de Investigaciones Económicas)
    Abstract: This paper presents evidence on the impact of bank-specific, regulatory, institutional, macro and financial development variables on competition in banking, using information at both national and bank level. With this aim, Lerner indices of market power are estimated using a sample of 10,479 annual observations over the period 1995-99 across 58 countries. Results show that although bank-specific characteristics explain a substantial proportion of market power, market structure variables and, above all, the level of financial development also help to explain the differences observed in the levels of banking competition. Regulatory impediments to competition are not significant when controlling for financial development. Este artículo presenta evidencia del impacto que las variables específicas de cada banco, las regulatorias, institucionales, macroeconómicas y de desarrollo financiero ejercen sobre la competencia bancaria, utilizando información tanto a escala nacional como a nivel de empresa. Con este objetivo, se estiman índices de Lerner de poder de mercado utilizando 10.479 observaciones durante el periodo de 1995-99 para una muestra de 58 países. Los resultados muestran que, aunque las características específicas de cada banco explican una parte sustancial del poder de mercado (especialmente el tamaño y la eficiencia), las variables de estructura del mercado, y, sobretodo, el nivel de desarrollo financiero también ayudan a explicar las diferencias observadas en los niveles de competencia bancaria. Las barreras regulatorias a la competencia no son significativas cuando se controla por desarrollo financiero.
    Keywords: banking, market power Banca, poder de mercado
    JEL: G21 D43 L13
    Date: 2005–04
  25. By: Michael J. Bennett (Department of Management, Curry College, Milton, MA)
    Abstract: This paper examines the effect of ownership structure on the market assessment of asset sales. Three types of ownership structures are identified: large block outside, inside, and widely held. Empirical results indicate that firms with large block outside shareholders experience significantly positive announcement effects for both buying and selling firm samples. These are significantly greater than those for the inside shareholder and large widely held firms. Two other questions are examined. For the second question, the sample is partitioned in a pair wise way to see if the ownership structure of the firm being transacted with has an effect. Results suggest that the ownership structure of the firm on the other side of the deal does have an effect The third question examines whether ownership has an effect in the presence of other types of information, specifically, the release of the price paid for the asset. In the presence of an ownership variable, the disclosure of price does not have an effect on the market's reaction to the asset sale.
    Keywords: Ownership Structure, Asset Sales, Market Valuation
    JEL: G32 G34 G38
    Date: 2004–07
  26. By: Astrid Romain (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels); Bruno Van Pottelsberghe (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels)
    Keywords: Venture capital, Technological opportunity, Entrepreneuship, Labour market rigidities.
    JEL: G24 M13 C33 O33
    Date: 2004–04
  27. By: Marie-Paule Laurent (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels)
    Abstract: The Basel Committee is currently reviewing the Accord on capital adequacy. It should provide new approaches that are more sensitive to risks. This paper focuses on the Internal Rating Based Advanced approach for retail exposures, which is compared to a one systematic factor model in order to highlight the underlying hypotheses of Basel II. The Basel framework assumes that the asset return correlation is solely determined by the probability of default (PD). However, the one-factor model highlights the influence of the volatility of PD on the asset return correlation, especially for low PDs. The assumption of the Basel framework implies first that there may be opportunities for regulatory arbitrage. Second, as the regulatory capital curve is concave in PD, it gives an incentive to decompose the portfolio into segments only for reducing the capital requirement. Finally, the inaccurate measure of asset return correlation might be misleading for credit risk management. The Basel framework is applied to a large portfolio of retail contracts (35,787 individual automotive lease contracts) provided from a major European financial institution. We show that the outcomes of Basel II are empirically relevant.
    Keywords: credit risk, Basle II, asset correlation
    JEL: G11 G18
    Date: 2004–04
  28. By: Venkat Subramanian (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels); Paul Verdin (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels)
    Keywords: Value, leader, strategy
    JEL: M21 M14
    Date: 2004–11
  29. By: Ariane Chapelle (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels); Ariane Szafarz (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and DULBEA, Université Libre de Bruxelles)
    Abstract: Pyramids, cross-ownership, rings and other complex features inducing control tunnelling are frequent in the European and Asian industrial world. Based on the matrix methodology, this paper offers a model for measuring integrated ownership and threshold-based control, applicable to any group of interrelated firms. In line with the theory on pyramidal control, the model avoids the double counting problem and sets the full-control threshold at the conservative - but incontestable - majority level of 50% of the voting shares. Any lower threshold leads to potential inconsistencies and leaves unexplained the observed high level of ownership of many dominant shareholders. Furthermore, the models leads to ultimate shareholders' control ratios consistent with the majority voting rule. Finally, it is applied to the Frère Group, a large European pyramidal holding company known for mastering control leverages.
    Keywords: Majority Voting Rule, Pyramidal Ownership; Corporate Control; Corporate Governance
    JEL: G32
    Date: 2005–02

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