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This paper seeks to identify the determinants of corporate ownership and control that emerge in regulatory environments which do not inhibit the issue of shares with differential voting rights andlor the establishment of pyramid holding companies (which serve exactly the same purpose). [Methodologically, the paper follows the seminal study of the US corporate structure by Demsetz & Lehn (1985).] Such settings tend to produce very concentrated control structures, which contrast sharply with those of the USA, the UK and Australia, where the distribution of shareholder votes in the large public corporations is relatively diffuse. Relatively lenient listing regulations have produced in South Africa a corporate landscape dominated by pyramid holding companies and multilayered diversified corporate groupings. These structures have effectively concentrated the control of most of the large public companies in the hands of a few entrepreneurial families (as well as the two large life insurance mutuals). This setting has enabled us to advance and test hypotheses about control and ownership which would be more difficult to test in a US, U K or Australian setting.Almost all the companies in our sample were found to be under the absolute control of a single identifiable shareholder coalition (usually one or two families) but the underlying percentage shareholding of the controlling group in each company was found to vary dramatically and systematically. We sought to explain that variation and to identify the role of the market as a constraint on the ability of controlling shareholders who wish to dilute their equity stake without surrendering control for the purpose of expanding their companies (without incurring additional debt) andlor diversifying their personal wealth. Demsetz & Lehn had already identified the factors that determine the demand by shareholders for equity dilution but not those constraining their ability to do so. This paper, therefore, attempts to shed light on the way in which principallagent problems affecting shareholders and managers are resolved when one-share-one-vote is neither enforced nor encouraged by the regulatory environment.' This paper draws heavily on the ongoing research programme at the University of Cape Town on Corporate Structure and Control. The research is supported by the Chairmans Fund of the Anglo-American and De Beers Corporation for whose support we are most grateful but who bear absolutely no responsibility for the analysis or conclusions reached. Volume 4 Number 2

1) RECENT EVENTS IN SOUTH AFRICA provide an opportunity to test theories that purport to identify the determinants of real exchange rate movements -in particular, the real as opposed to the monetary determinants. This paper suggests that real fac-tors overshadow monetary influences. Two features play an important role in the foreign sector of the South Afri-can economy. (1) Oscillations in the terms of trade, arising chiefly from fluctuations in the gold price and (2) recurrent political shocks that cause outflows of foreign capital. These fea-tures are interrelated, the sequence of events usually running as follows. A decline in the gold price and hence in the country's terms of trade occurs and is initially regarded as transitory. There may be an incentive for foreign capital to flow in at this stage. If the lower gold price persists, the market gradually re-assesses the decline in the terms of trade as permanent; and capi-tal, seeking higher risk-adjusted rates of return, begins to flow out of the country. In either event expectations that were formed before the decline in the gold price are disappointed. The two gold 'busts' of 1975/76 and 1983/84 were followed by racial un-rest that in each case precipitated a political crisis and a flight of foreign capital. In this paper these events are drawn on to highlight aspects of the theory of real exchange rates. Thus the progression moves somewhat unconventionally from the specific to the general. Section 1 attempts to identify the key determinants of real exchange rate movements in South Africa. The ac-cent here is on econometric tests with-out any explicit theoretical frame-work. The determinants are primarily the flight of foreign capital and, to a lesser extent, changes in the terms of trade. Monetary shocks seem to have had little effect. Section 2 presents an informal analysis of capital flight as a determinant of the real exchange rate, the impact of changes in the terms of trade also receiving attention. The thread running through this section is that the rate of absorption determines 1988 SAJE v56(2) p125 the real exchange rate. Section 3 investigates the link between productivity and the real exchange rate and presents an adapted version of a model by Officer (1974) which yields conclusions different from those advanced by him. The implications of the amended model are examined in Section 4. Like all models, the one presented in this paper is a simplification of reality. In particular, the production function implies constant returns to scale which renders its conclusions incompatible with the more plausible informal analysis of Section 2. The model directs attention to the productivity of immobile factors as a determinant of the long-run equilibrium real ex-change rate and highlights the link between purchasing power parity (which constitutes one of the definitions of the real exchange rate) and factor price equalization, which is an important theorem in the literature of international trade theory.