Mara Faccio

The Ultimate Ownership of Western European Corporations

We analyze the ultimate ownership and control of 5,232 corporations in 13 Western European countries. Typically firms are widely held (36.93%) or family controlled (44.29%). Widely held firms are more important in the UK and Ireland,family controlled firms in continental Europe. Financial and large firms are more likely widely held,while non-financial and small firms are more likely family controlled. State control is important for larger firms in certain countries. Dual class shares and pyramids enhance the control of the largest shareholders,but overall there are significant discrepancies between ownership and control in only a few countries. r 2002 Elsevier Science B.V. All rights reserved. JEL classification: G32

Differences between Politically Connected and Nonconnected Firms: A Cross-Country Analysis

Evidence from firms in 47 countries shows that companies with political connections have higher leverage and higher market shares, but they underperform compared to non-connected companies on an accounting basis. Differences between connected and unconnected firms are more pronounced when political links are stronger. Differences also vary depending on the level of corruption and the degree of economic development in individual countries.

Do Occupational Pension Funds Monitor Companies in Which They Hold Large Stakes

In this paper we analyze the monitoring role of occupational pension funds in the UK. We argue that because of their objectives, structure and overall share holding, occupational pension funds are likely to have more incentives to monitor companies in which they hold large stakes than other financial institutions. By comparing companies in which these funds hold large stakes with a control group of companies listed on the London Stock Exchange, we show that occupational pension funds hold large stakes over a long-time period mainly in small companies. However, the value added by these funds is negligible and their holdings do not lead companies to comply with the Code of Best Practice or outperform their industry counterparts. Overall, our results suggest that occupational pension funds are not effective monitors.

Sudden Deaths: Taking Stock of Geographic Ties

Analysis of a worldwide sample of sudden deaths of politicians reveals a market-adjusted 1.7% decline in the value of companies headquartered in the politicians hometown. The decline in value is followed by a drop in the rate of growth in sales and access to credit. Our results are particularly pronounced for family firms, firms with high growth prospects, firms in industries over which the politician has jurisdiction, and firms headquartered in highly corrupt countries.

Sheltering Corporate Assets from Political Extraction

We hypothesize that firms structure their asset holdings so as to shelter assets from extraction by politicians and bureaucrats. In countries where the threat of political extraction is higher, we hypothesize that firms hold a lower fraction of their assets in liquid form. Consistent with this conjecture, using data representing over 30,000 firms across 109 countries, we find that corporate holdings of liquid assets are negatively correlated with measures of political corruption. Further, annual investment in property, plant, equipment, and inventory plus dividends is positively correlated with measures of political corruption suggesting that owners channel their cash into harder to extract assets. To the extent that the threat of political extraction moves firms away from their otherwise optimal levels of liquid assets, our findings suggest that the threat of political extraction may reduce economic development not only through the direct costs of political payoffs but also because the potential for asset extraction moves firms away from their otherwise optimal asset holdings. The Author 2011. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.

Debt and Expropriation

We regress leverage on an index of corporate exposure to expropriation by the controlling shareholder - the ratio of his ownership rights O to his control rights C - and on an index of creditor rights. Amongst corporations that can access related party loans, a lower O/C ratio increases leverage when creditor protection is weak; but reduces leverage where creditor protection is strong. In the first case, higher leverage gives the controlling shareholder control of more resources to expropriate. In the second case, minority shareholders and external lenders constrain the leverage of group affiliates that seemed more vulnerable to expropriation.

Politically-Connected Firms: Can They Squeeze the State?

For a sample of 42 countries, I examine firms whose controlling shareholders and top managers are members of national parliaments or governments. I find that this overlap is quite widespread, especially in highly corrupted countries. Connected companies enjoy easier access to debt financing, lower taxation, and stronger market power. These benefits increase when companies are connected through their owner, with a minister, or a seasoned politician. Furthermore, these benefits are generally larger when the firm operates in a country with high corruption, low protection of property rights, a highly interventionist government, or a non-democratic government. Even though these connections provide significant benefits, connected firms under-perform their peers on an ex-ante basis. Therefore connections, by driving benefits to relatively poorly performing firms, distort the allocation of funds and investment decisions.

Politically Connected Private Equity and Employment

We investigate the employment consequences of private equity buyouts. We find that, on average, buyouts by politically connected private equity firms are associated with higher job creation at the establishments operated by their target firms than buyouts by non-connected private equity firms. Consistent with an exchange of favors story, establishments operated by targets of politically connected private equity firms increase employment more during election years and in states with high levels of corruption. We also provide evidence of specific benefits experienced by target firms from their political connections. Our conclusions are corroborated by tests designed to mitigate selection concerns.

Taxes, Capital Structure Choices, and Equity Value

We use a multitude of tax reforms across the Organisation for Economic Co-Operation and Development (OECD) countries as natural experiments to estimate the market value of the tax benefits of debt financing. We report time-series evidence that tax reforms are followed by large changes in the value of corporate equity. However, the impact of tax reforms is greatly mitigated by the presence of leverage. The value of debt tax savings is greater among top taxpayers, among highly profitable firms, and in countries where tax laws are more strongly enforced. Importantly, the value of debt tax savings is in line with the benchmark implied by a traditional approach.

Political Determinants of Competition in the Mobile Telecommunication Industry

We study how political factors shape competition in the mobile telecommunication sector. We show that the way a government designs the rules of the game has an impact on concentration, competition, and prices. Pro-competition regulation reduces prices, but does not hurt quality of services or investments. More democratic governments tend to design more competitive rules, while more politically connected operators are able to distort the rules in their favor, restricting competition. Government intervention has large redistributive effects: U.S. consumers would gain