Diversification and ownership concentration

Bruno Parigi () and Loriana Pelizzon ()
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Bruno Parigi: University of Padua

No 5, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: We consider a mean-variance general equilibrium economy where the expected returns for controlling and non-controlling shareholders are different because the former are able to divert a fraction of the profits. We find that when investor protection is poor, asset return correlation aspects ownership structure in a positive way. Higher return correlation lowers the benefits of diversification which causes a higher investment by the controlling shareholder in his asset and a lower investment by the non-controlling shareholders. The empirical analysis supports the predictions of the model. In particular, controlling for measures of the quality of the investor protection, the legal origin of the countries, and other structural variables as in a previous study by La Porta et al. (1998) we find that equity ownership is significantly more concentrated in countries where stock return correlation is higher, and that the magnitude of this effect is larger in countries where investor protection is poorer.

Keywords: Corporate governance; Investor protection; Private benefits; Diversification opportunities (search for similar items in EconPapers)
JEL-codes: D8 G2 G3 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2005-10
New Economics Papers: this item is included in nep-fin
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Related works:
Journal Article: Diversification and ownership concentration (2008)
Working Paper: Diversification and Ownership Concentration (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0005

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