Large Shareholdings and Corporate Control: An Analysis of Stake Purchases by French Holding Companies

Abstract

The paper analyses the value creation benefits of the holding form of organisation in France by empirically examining the effects of non-controlling stake purchases on target shareholder wealth, operational performance and bidder shareholder returns for a sample of 122 stake purchases in French listed companies. The evidence puts into question the ability of holding companies to create value for the firms they purchase stakes in or their own shareholders, adding to the current debate on the relative role played by large shareholders and the external market for corporate control as ultimate disciplining devices.

Ownership, managerial control and the governance of companies listed on the Brussels stock exchange

“…Board composition and leverage have a substantial impact on board restructuring, but neither ownership concentration nor a partial market for share stakes leads to increased disciplining in holding companies. Belgian listed holding companies may to a large extent suffer from a lack of corporate control and seem to have discharged themselves from efficient monitoring of the companies they control, as seems also be the case for French holding companies (Banerjee, Leleux and Vermaelen 1997). In spite of the presence of a large shareholder in a vast majority of Belgian listed companies and of the breakdown -both in terms of performance and governance -of the ownership cascade system involving holding companies, it is problematic that the recent codes for good corporate governance do not encompass any recommendation with regard to large shareholder monitoring 35 .…”

“…Specific classes of owners may value control differently as the source of the control premium is the additional compensation and perquisites the controlling security holders can accord themselves (Jensen and Meckling, 1976 Demsetz and Lehn (1985), Barclay and Holderness (1991) and Holderness and Sheehan (1988). Holding companies are prevalent in Belgium and their private benefits and reasons for control accumulation are manifold: capturing tax reductions by facilitating intercompany transfers, reducing transaction costs by offering economies of scale or by supplying internal sources of funds (Banerjee, Leleux and Vermaelen, 1997). Likewise, corporate shareholders may hold substantial share stakes in a target that may be a supplier of customer, in order to influence and/or capitalise on the target's strategic decisions.…”

Banks as firms’ blockholders: a study in Spain

“…Other works do not find a significant relationship (Zoido, 1998, for Spain;Edwards and Nibler, 2000 as well as Chirinko and Elston, 2006, for Germany;and Prowse, 1992, 4 for Japan). Finally, other papers, such as Banerjee et al (1997) for holding companies in France; Morck et al (2000), 5 show the existence of a negative relationship due to the strong power of banks.…”

Recent developments in German corporate governance

“…The only consistent and significantly finding relates to managerial entrenchment as managers with a substantial degree of control are able to ward off any attempts to remove them. Banerjee, Leleux and Vermaelen (1997) investigate the governance role of French holding companies which constitute the dominant shareholder category in France and conclude that the presence of holding companies as major shareholders seems to reduce corporate performance and firm value. Similarly, Renneboog (2000) fails to find a monitoring role for blockholders in firms listed on the Brussels stock exchange, with the exception of controlling industrial and commercial companies which initiate board restructuring when the firm's accounting and share price performance declines.…”