We present data on ownership structures of large corporations in 27 wealthy economies, making an effort to identify the ultimate controlling shareholders of these firms. We find that, except in economies with very good shareholder protection, relatively few of these firms are widely held, in contrast to the Berle and Means image of ownership of the modern corporation. Rather, these firms are typically controlled by families or the State. Equity control by financial institutions or other widely held corporations is far less common. The controlling shareholders typically have power over firms significantly in excess of their cash flow rights, primarily through the use of pyramids and participation in management. * Harvard University. We are grateful to Alexander Aganin, Carlos Berdejo-Izquierdo, David Grossman, Bernardo Lopez-Morton, Tatiana Nenova, Ekaterina Trizlova and David Witkin for help with assembling the data, to Lucian Bebchuk, Marco Becht, Mihir Desai, Oliver Hart, Louis Kaplow, Ren Stulz, Robert Vishny, Luigi Zingales, and two anonymous referees for advice, and to the NSF for financial support. In their 1932 classic, "The Modern Corporation and Private Property," Adolph Berle and Gardiner Means called attention to the prevalence of widely held corporations in the United States, in which ownership of capital was dispersed between small shareholders, yet control was concentrated in the hands of managers. For at least two generations, their book fixed the image of the modern corporation as one run by professional managers unaccountable to shareholders. The book stimulated an enormous "managerialist" literature on the objectives of such managers, including the important work of Baumol (1959), Marris (1964), Penrose (1959), and Williamson (1964), as well as Galbr...

We examine the separation of ownership and control for 2,980 corporations in nine East Asian countries. In all countries, voting rights frequently exceed cash-#ow rights via pyramid structures and cross-holdings. The separation of ownership and control is most pronounced among family-controlled "rms and small "rms. More than two-thirds of "rms are controlled by a single shareholder. Managers of closely held "rms tend to be relatives of the controlling shareholder's family. Older "rms are generally family-controlled, dispelling the notion that ownership becomes dispersed over time. Finally, signi"cant corporate wealth in East Asia is concentrated among a few families. � 2000 Elsevier Science S.A. All rights reserved. JEL classixcation: G32; L22

We present a model of the effects of legal protection of minority shareholders and of cash-flow ownership by a controlling shareholder on the valuation of firms. We then test this model using a sample of 539 large firms from 27 wealthy economies.

We use a sample of 800 firms in eight East Asian countries to study the effect of ownership structure on value during the region’s financial crisis. The crisis negatively impacted firms’ investment opportunities, raising the incentives of controlling shareholders to expropriate minority investors. During the crisis, cumulative stock returns of firms in which managers have high levels of control rights, but have separated their control and cash flow ownership, are 10 to 20 percentage points lower than those of other firms. The evidence is consistent with the view that ownership structure plays an important role in determining the incentives of insiders to expropriate minority shareholders. *Michael Lemmon and Karl Lins are Associate and Assistant Professors of Finance, respectively, at the

This paper combines the agency theory of the firm with risk diversification incentives for insiders. Principal-agent problems between insiders and outsiders force insiders to retain a larger share in their firm than they would under a perfect risk diversification strategy. We predict that this higher share of insider ownership and the resulting exposure of insiders to higher idiosyncratic risk will result in underinvestment and higher cost of capital. Using firm-level data from 38 countries, the authors provide evidence in support of their theoretical model, showing that the premium for bearing idiosyncratic risk varies between zero and six percent and decreases in the level of outside investor protection. The results of the paper imply that policies aimed at strengthening investor protection laws and their enforcement will improve capital allocation and result in higher growth.

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First, this paper specifies a structural model of the firm, the standard principal-agent model augmented with an investment decision, and then uses that model to conduct empirical work on the connection between performance and ownership. We calibrate the model exactly to data on managerial ownership and the level of investment in productive assets from Execucomp and Compustat. For each firm-year observation, this generates estimates of structural productivity parameters for both investment and managerial input. Based on variation in these exogenous parameters, we find that Tobin’s Q and managerial ownership exhibit the patterns documented in McConnell and Servaes (1990). Thus, our augmented principal-agent model can explain the hump-shaped empirical relation between performance and managerial ownership. No additional factors, such as managerial entrenchment overtaking incentive alignment at high ownership levels, are required. Second, the calibration creates a data panel for which we know the underlying structural model and appropriate empirical specification. This allows us to quantify the statistical and economic importance of specification error and endogeneity in empirical work. Including firm fixed effects or controls for firm size (investment or sales) adds explanatory power, but the spurious relation between Q and managerial ownership typically remains. In this setting, standard approaches to the

Which public policies and ownership structures enhance the governance of banks? This paper constructs a new database on the ownership of banks internationally and then assesses the ramifications of ownership, shareholder protection laws, and supervisory/regulatory policies on bank valuations. Except in a few countries with very strong shareholder protection laws, banks are not widely held, but rather families or the State tend to control banks. We find that (i) larger cash-flow rights by the controlling owner boosts valuations, (ii) stronger shareholder protection laws increase valuations, and (iii) greater cash-flow rights mitigate the adverse effects of weak shareholder protection laws on bank valuations. These results are consistent with the views that expropriation of minority shareholders is important internationally, that laws can restrain this expropriation, and concentrated cash-flow rights represent an important mechanism for governing banks. Finally, the evidence does not support the view that empowering official supervisory and regulatory agencies will increase the market valuation of banks.

This paper is the first study of long-run evolution of investor protection, equity financing and corporate ownership in the U.K. over the 20 th century. Formal regulation only emerged in the second half of the century. We assess its influence on finance and ownership by comparing evolution of firms incorporating at different stages of the century. Regulation had little impact on equity issues or dispersion of ownership: even in the absence of regulation, there was a large amount of both, primarily associated with mergers. The main effect of regulation was on share trading and the market for corporate control. These results cast doubt on law and finance theories and suggest financial development in the U.K. relied more on informal relations of trust than on formal systems of regulation.

We argue that individual characteristics of managers can explain capital structure decisions like debt conservatism and pecking-order financing choices. Moreover, they can explain cross-sectional variation in these decisions despite identical firm characteristics. We link the reluctance of (some) managers to access external capital markets, and in particular equity markets, to managerial overconfidence. Overconfident managers believe that their company is undervalued. They view external financing, and especially equity financing, as overpriced. We test the overconfidence hypothesis, using several measures of managerial overconfidence. We classify CEOs as overconfident if they persistently fail to reduce their personal exposure to company-specific risk. We also classify CEOs based on their characterization in the business press. We find that overconfident CEOs are significantly less likely than other CEOs to issue equity, conditional on tapping public securities markets. Likewise, they issue roughly 30 cents more debt to cover an additional dollar of external financing deficit than their peers. Finally, overconfident CEOs access all external capital markets (including debt markets) more conservatively.