Ownership, Control and Market Liquidity

Abstract

We examine how ownership concentration and the separation of ownership and control affect market liquidity in France. We find that firms with a large insider blockholder exhibit significantly lower liquidity. Different methods of concentrating control affect liquidity in different ways. Pyramid structures negatively affect liquidity for all pyramiding firms. Double voting right shares, a French specific means of control enhancement rewarding long-term shareholders, lead to increased liquidity for outside investors of small, familyfirms, by reducing the probability of informed trading.

Corporate social performance, ownership structure, and corporate governance in France

“…Concentrated ownership can reduce the level of trading activity or affect share prices; the reduced market liquidity also might affect investors' ability to sell their shares (Holmstrom and Tirole, 1993). Empirical evidence suggests that stock market liquidity decreases in civil law countries (Chung et al, 2012); block ownership is detrimental to the firm's market liquidity in France (Ginglinger and Hamon, 2012), and trading cost are A c c e p t e d M a n u s c r i p t 6 significantly higher in civil law countries such as France (Eleswarapu and Venkataraman, 2006). We thus hypothesize:…”

Seasoned Equity Offerings: Stock Market Liquidity and the Rights Offer Paradox

“…For these reasons we expect liquidity to decrease with blockholdings. Heflin and Shaw () for the US and Ginglinger and Hamon () for France report a positive relationship between spreads and block ownership. However, results for the US where blockholders are mainly institutional investors are mixed.…”

Blockholder leverage and payout policy: Evidence from French holding companies

“…Our results are unchanged by this modification (not reported in tables): the control wedge variable remains insignificant, whereas the variables for pyramidal leverage remain strongly significant. 21 Ginglinger and Hamon (2012) report that about two thirds of listed French companies adopt double voting rights and that they are most popular among smaller and family companies; our numbers are comparable. Two other control-enhancing devices are in principle available but rarely used: non-voting shares are used by less than 2% of blockholder-controlled firms; voting caps are used by only about 1% (Ginglinger & Hamon, 2012).…”

“…21 Ginglinger and Hamon (2012) report that about two thirds of listed French companies adopt double voting rights and that they are most popular among smaller and family companies; our numbers are comparable. Two other control-enhancing devices are in principle available but rarely used: non-voting shares are used by less than 2% of blockholder-controlled firms; voting caps are used by only about 1% (Ginglinger & Hamon, 2012). In 2014, the French law changed and the grant of double voting rights was made the legal default status, leading to a considerable increase of their use, even though companies could opt out (so-called Florange law, see Becht, Kamisarenka, Pajuste, 2018).…”

“…We report an expansion of the summary statistics for the financial characteristics shown in Table 1 (2002); Ginglinger and Hamon (2012). 15 We follow common practice and set payout ratios to unity when dividends are paid but cash flows are negative or less than the dividend (e.g., (median: 1.667) measures the control-enhancing effect of pyramids as follows: considering only equity stakes in the pyramidal structure, dominant owners own 2.07 times more voting rights on average than they hold cash flow rights, and it changes little in the post-crisis period.…”