The market for corporate control in a bank-based economy: a governance device?

Recent developments in German corporate governance

“…Hence, one can conclude that there is no active market for corporate control in Germany. This conclusion is supported by Franks and Mayer (1990) and Köke (2004), although Jenkinson and Ljunqvist (2001) show that there exists a market for partial control stakes which is frequently hostile (see next section).…”

“…Control concentration is also very high when measured by using an ultimate control criterion which tracks control throughout chains of direct stakes Schmid 2000a, 2000b) and by the Cubbin and Leech (1983) index (as applied by Köke (2001)). Ultimate control concentration is even higher in unlisted firms (see also Edwards and Nibler (2000) and Köke (2004)). 6 Becht and Boehmer (2001,2003) show that not only is there a high concentration of voting power in listed companies (82% of them have a large blockholder controlling ultimately more than 25% of the voting rights), but the largest shareholder often does not face other large shareholders (only 20% of these companies have more than two registered blockholders) and the average size of the second largest block (7.4%) is small (see also Edwards and Fischer (1994) and Edwards and Nibler (2000)).…”

“…Moreover, 15 percent of the firms have a member of the management team as the largest shareholder. Second, Köke (2004) reports ultimate control measures for a sample of listed and unlisted firms for the years 1987-1994. The average stake of the (executive and non-executive) directors and their families is 22.5 percent for the quoted firms and 12 percent for unquoted firms.…”

“…Diamond (1984), for example, formulates a model that shows that delegation of monitoring to banks is efficient as 21 However, Köke (2004) "finds no evidence that complex ownership structures deter control purchases". 22 This kind of relationships has also been observed in other European countries and seems to be related to the consolidation trend affecting the financial services industry all over the world (Goldman Sachs 2000, Walter andSmith 2000).…”

Control consolidation with a threshold: an algorithm

“…They separate ownership from control by using chains of successive participations starting at the top by an ultimate shareholder (Renneboog, 2000;ECGN, 2001, Köke 2004). Because of the embedded structure of pyramids, the direct voting rights which ignore leverages underestimate the control power of some dominant shareholders.…”