Marco Becht

The control of corporate Europe

Written by an international team of authors, this book provides the first systematic account of the control of corporate Europe based on voting block data disclosed in accordance with the European Unions Large Holdings Directive (88/627/EEC). The study provides detailed information on the voting control of companies listed on the official markets in Austria, Belgium, France, Germany, Italy, the Netherlands, Spain, Sweden, the United Kingdom, and, as a benchmark comparison, the United States. The authors record a high concentration of control of corporations in many European countries with single blockholders frequently controlling more than fifty per cent of corporate votes. In contrast, a majority of UK listed companies have no blockholder owning more than ten per cent of shares, and a majority of US listed companies have no blockholder with more than six per cent of shares. Those chapters devoted to individual countries illustrate how blockholders can use legal devices to leverage their voting power over their cash-flow rights, or how incumbents prevent outsiders from gaining voting control. It is shown that the cultural and linguistic diversity of Europe is (almost) matched by its variety of corporate control arrangements. Contributors to this volume - Jonas Agnblad (Nordic Capital - leveraged buy-out fund in Stockholm) Fabrizio Barca (Italian Treasury/Sienna University) Marco Becht (Institute for European Studies/Solvay Business School/Universite Libre de Bruxelles) Erik Berglof (Stockholm School of Economics/CEPR) Marcello Bianchi (Consob - Stock Exchange and Public Companies Italian Authority) Magda Bianco (Bank of Italy) Laurence Bloch (Technical Adviser, French Foreign Trade Ministry) Ekkehart Boehmer (New York Stock Exchange) Ariane Chapelle (Solvay Business School/Universite Libre de Bruxelles) Rafel Crespi-Cladera (Universitat Autonoma, Barcelona) Abe de Jong (Erasmus University, Rotterdam) Luca Enriques (University of Bologna) Miguel Garcia-Cestona (Universitat Autonoma, Barcelona) Marc Goergen (UMIST) Klaus Gugler (University of Vienna) Peter Hogfeldt (Stockholm School of Economics) Rezaul Kabir (University of Tilburg) Susanne Kalss (University of Klagenfurt) Elizabeth Kremp (Ministry of Economy, Finance, and Industry, France) Teye Marra (University of Groningen) Colin Mayer (Said Business School) Luc Renneboog (University of Tilburg) Ailsa Roell (Princeton University) Alex Stomper (University of Vienna) Helena Svancar (Enskilda Securities - Nordic investment bank) Josef Zechner (University of Vienna)

Blockholdings in Europe:: An international comparison1

Abstract We preview empirical work by the European Corporate Governance Network on the size of block shareholdings in Europe. The most salient finding is the extraordinarily high degree of concentration of shareholder voting power in Continental Europe relative to the U.S.A. and the U.K. Thus the relationship between large controlling shareholders and weak minority shareholders is at least as important to understand as the more commonly studied interface between management and dispersed shareholders.

Hedge Fund Activism in Europe

The paper analyzes 362 European activist interventions by hedge funds, focus funds and other activist investors from 2000 to 2008. The sample includes both public and private interventions. The private interventions are based upon proprietary data collected from five activist funds. For public interventions the disclosure of acquired stakes is associated with large positive abnormal returns across a number of jurisdictions. Private activism is extensive and profitable but less so than public activism, in large part because the incidence of takeovers is higher in public activism. The returns from hostile activist interventions are more profitable than co-operative ones, and returns for specialist activist funds are substantially larger than for other investors. After controlling for these factors legal jurisdiction does not explain differences in returns across countries.

Corporate law and governance

This chapter surveys the theoretical and empirical research on the main mechanisms of corporate law and governance, discusses the main legal and regulatory institutions in different countries, and examines the comparative governance literature. Corporate governance is concerned with the reconciliation of conflicts of interest between various corporate claimholders and the resolution of collective action problems among dispersed investors. A fundamental dilemma of corporate governance emerges from this overview: large shareholder intervention needs to be regulated to guarantee better small investor protection; but this may increase managerial discretion and scope for abuse. Alternative methods of limiting abuse have yet to be proven effective.

Does bank affiliation mitigate liquidity constraints? Evidence from Germany's Universal banks in the pre-World War I period

This paper compares two similar samples of mining and steel corporations in pre–World War I Germany: one sample consists of corporations that were affiliated to one or more of the German “Universal Banks”, and the second sample consists of companies that had to rely on other sources of finance. Statistical analysis conducted in the framework of a linear fixed effects model indicates that the non-affiliated companies were liquidity constrained. The paper also sets out the corporate control structure as laid down in the trade law reform of 1884 and traces the origins of the current German dual board system, as well as the origins of several other aspects of the institutions that tied the German banking system to industrial concerns. (This abstract was borrowed from another version of this item.)

Centros and the Cost of Branching

Following the Centros, Uberseering and Inspire Art decisions of the European Court of Justice (ECJ), a thriving market for incorporations has developed in the European Union. Round-trip incorporation is competing with domestic incorporation. Entrepreneurs can set up a shell company in any EU jurisdiction and branch back to their home country to operate a business. The UK Limited Company (UK Limited) is a popular choice in many countries because it is rapidly and cheaply available online with minimum formalities. We have developed a taxonomy for measuring the cost of Limited round-trip incorporation. The cost of setting up a UK Limited is directly observable in the market while the cost of branching is not. We have run field experiments to measure the cost of branching. Our analysis reveals that despite the ECJ rulings, branching remains costly or impractical in many cases. Incorporation agents play an essential role in overcoming the limitations to branching.

Hedge fund activism in Europe: Does privacy matter?

Shareholder activism in Europe is sometimes difficult to observe. There are few shareholder proposals put forward at annual meetings on the Continent and even fewer in the United Kingdom. Activism by hedge funds is relatively more frequent but data is only available on the most public cases. This does not imply that shareholder activism in Europe is non-existent; on the contrary. The lack of shareholder proposals could be the result of real shareholder power that only needs to surface occasionally. We analyze this proposition in a non-random sample of 131 European interventions from five activist funds which have provided the authors with proprietary information. Of these 131 interventions, 57 were not made public either during or subsequent to the intervention. Investigating private activism is important because, when it is combined with public activism, it provides a better measure of the overall level of activity. It also allows us to examine the issue of whether private engagements are more profitable than public and hostile engagements, rather like the comparison with hostile versus agreed takeovers (although not all public engagements are hostile and not all private ones are friendly). Our findings indicate that shareholder activists in Europe are more influential than the public numbers might suggest. Also, private engagement outcomes are more profitable when there is chairman turnover and non-takeover restructuring (spin-offs, equity carve-outs). Private activism appears to be particularly significant when engaging with blockholder controlled companies.