 The diversification cost of large, concentrated equity stakes. How big is it? Is it justified?No 2009/22, UiS Working Papers in Economics and Finance from University of Stavanger Abstract: While the hypothesis that ownership concentration can affect the value of a company has seen a lot of empirical study, little light has been shed on a complementary problem, that these concentrated owners have a cost of their position due to an undiversified portfolio. Using a unique data set of the actual diversification of all Norwegian equity owners, we show that the largest owners of a corporation in fact have very undiversified equity portfolios, and that such owners have significant costs to their concentrated portfolios. At the level of risk of a benchmark portfolio, if they were to move from their present portfolio composition in risky assets to a well diversified portfolio, their returns would have increased by about 13 percentage points in annual terms. We ask whether this cost can be explained by estimated benefits of ownership concentration (private benefits), and show that extant estimates of private benefits are too low to offset our cost estimates. Keywords: Portfolio diversification; Large equity owners; Costs and benefits of equity ownership concentration; Private benefits. (search for similar items in EconPapers) Published in Finance Research Letters, 2009, pages 56-72. Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hhs:stavef:2009_022 Access Statistics for this paper More papers in UiS Working Papers in Economics and Finance from University of Stavanger University of Stavanger, NO-4036 Stavanger, Norway. Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.