the ownership structure of european blue chips: is there a convergence in corporate ownership?

The ownership structure of European blue chips: is

there a convergence in corporate ownership?

By

Pierfrancesco Bresolini Eibenstein

2016

A Dissertation presented in part consideration for the degree of

Master of Science in Business and Management

Abstract

The two main models of corporate governance originated in the second part of the 20th

century: the shareholder model, in the Anglo-Saxon world, and the stakeholder model, in

Continental Europe. They are respectively mainly characterized by widespread and

concentrated ownership and, consequently, by different agency problems. However, with

the phenomenon of globalisation, the increased importance of financial markets and the

international success of Anglo-American multinational firms, a debate has arisen as to

whether there exists a convergence towards the shareholder oriented model. This research

aims to explore this controversy by focusing the analysis on the ownership structure of the

blue chip firms in the main stock indexes of Germany, France, Italy, Spain and the UK. The

research concludes that a convergence in corporate governance structure towards the

shareholder model seems to exist in almost all of those countries.

Keywords

Ownership; Corporate ownership; Corporate governance; Convergence corporate

governance; Corporate governance systems; Shareholders; Blue chips

Contents

List of Figures ........................................................................................ I

List of Tables ........................................................................................ II

Introduction ........................................................................................... 1

1 Background and literature review ................................................ 3

1.1 Corporate governance definitions ......................................... 5

1.2 Ownership and control ........................................................ 6

1.3 Models of corporate governance ........................................... 8

1.4 Is there a convergence? .................................................... 16

1.5 Research proposition ........................................................ 22

2 Methodology........................................................................... 24

2.1 Data ............................................................................... 26

2.2 Methodology of data analysis ............................................. 26

3 Data analysis .......................................................................... 29

3.1 Germany ......................................................................... 29

3.2 France ............................................................................ 32

3.3 Italy ............................................................................... 35

3.4 Spain .............................................................................. 39

3.5 UK .................................................................................. 43

3.6 General analysis ............................................................... 46

3.7 Statistical analysis ............................................................ 53

4 Results and discussion ............................................................. 58

Conclusion ........................................................................................... 62

References

I

List of Figures

Figure 1 DAX 30 ownership data .......................................................... 29

Figure 2 DAX 30 median and mean data ............................................... 30

Figure 3 Frequency of ownership in DAX 30 .......................................... 31

Figure 4 Types of largest investors in DAX 30 ........................................ 31

Figure 5 Location of largest investors in DAX 30 .................................... 32

Figure 6 CAC 40 ownership data .......................................................... 33

Figure 7 CAC 40 median and mean data ............................................... 33

Figure 8 Frequency of ownership in CAC 40 .......................................... 34

Figure 9 Types of largest investors in CAC 40 ........................................ 34

Figure 10 Location of largest investors in CAC 40 .................................... 35

Figure 11 FTSE MIB ownership data ....................................................... 36

Figure 12 FTSE MIB median and mean data ............................................ 37

Figure 13 Frequency of ownership in FTSE MIB........................................ 38

Figure 14 Types of largest investors in FTSE MIB ..................................... 38

Figure 15 Location of largest investors in FTSE MIB ................................. 39

Figure 16 IBEX 35 ownership data ......................................................... 40

Figure 17 IBEX 35 median and mean data .............................................. 40

Figure 18 Frequency of ownership in IBEX 35 .......................................... 41

Figure 19 Types of largest investors in IBEX 35 ....................................... 42

Figure 20 Location of largest investors in IBEX 35 ................................... 42

Figure 21 FTSE 100 ownership data ....................................................... 43

Figure 22 FTSE 100 median and mean data ............................................ 44

Figure 23 Frequency of ownership in FTSE 100 ........................................ 44

Figure 24 Types of largest investors in FTSE 100 ..................................... 45

Figure 25 Location of largest investors in FTSE 100 ................................. 46

Figure 26 Countries mean ownership comparison .................................... 47

Figure 27 Average size largest shareholder ............................................. 48

Figure 28 Largest shareholders owning more than 25% ............................ 49

Figure 29 Total shareholders owning more than 25% ............................... 50

Figure 30 Frequency of ownership comparison relative values ................... 51

Figure 31 Types of largest investors in relative values .............................. 52

II

List of Tables

Table 1 Countries mean ownership comparison ..................................... 47

Table 2 Hypothesises ......................................................................... 53

Table 3 Descriptives ........................................................................... 54

Table 4 Test of Homogeneity of Variances ............................................. 54

Table 5 ANOVA .................................................................................. 55

Table 6 Multiple Comparisons .............................................................. 56

Table 7 Ownership (Scheffe) ............................................................... 57

Table 8 Ownership (Tukey HSD) .......................................................... 57

1

Introduction

After the Second World War, two main different models of corporate governance

developed: the shareholder model and the stakeholder model. The first one developed in

the Anglo-Saxon world, such as in the UK. The second one developed principally in

Continental Europe and the main exponent is Germany. Those two models are mainly

characterized by widespread ownership, in the case of the shareholder model, and by

concentrated ownership, in the case of the stakeholder model. These differences in

ownership create two diverse agency problems: the principal-agent and the principal-

principal.

However, the last few decades have been characterized by several important

phenomena: globalization, the increased importance of financial markets and the

international success of Anglo-American multinational firms. Those events have led to a

debate about the convergence of corporate governance systems towards the shareholder

oriented model, which is considered the international benchmark. According to Hansmann

and Kraakman (2000), convergence towards the shareholder model is a natural

consequence of these important phenomena that characterize and influence the world. On

the other hand, for Jacoby (2000) convergence is still far off, and perhaps it will never be

achieved. In fact, Bebchuk and Roe (1999) and Salacuse (2002a) argue that a system of

corporate governance contains the values, tradition, the history and the culture of a

society, all of which tend to impede change and convergence towards a new system.

Instead, other authors, such as Aguilera and Jackson (2010), maintain that the

convergence will be at a medium point between the two models, taking the best practices

of everyone.

The problem of convergence seems to be difficult to detect because of the many

variables involved. In fact, attempting to find an overall convergence is probably also not

the best approach because the business environment is characterized by the presence of

many different types of firms of different sizes and characteristics. Also, the convergence

process is gradual, and it is not always so clear-cut. Thus, it is better to analyse and

compare similar types of companies, such as Branson (2001) does. In fact, he identifies a

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trend of convergence in big firms, because the common factor in these types of firms is

the stock market.

The purpose of this research is to analyse the ownership structure in the blue chip

companies of the most important European countries. The goal is to try to find similarities

and differences in the ownership structure, in order to see if convergence has occurred or

not, and what the current ownership situation for those categories of firms is. Moreover,

there will be also a focus on the type of main investors and their nationalities. In order to

detect if a convergence exists, a new statistical approach of analysis will be undertaken.

In fact, a one-way ANOVA test will be used to see if the average ownership in those indexes

are statistically different or not, thus seeing if these indexes are characterized by

widespread or concentrated ownership.

The dissertation proceeds as follows: section 1 presents the literature review,

background information and definitions. Section 2 describes the methodology applied in

this research, while the data analysis and the findings are presented in section 3. Finally,

Section 4 gives an overall discussion of the results gained, followed by the conclusion.

3

1 Background and literature review

In 1932 Berle and Means published The modern corporation and private property. In this

book, they describe and analyse the ownership structure and control of the 200 largest

firms in the US. They realise that many of those companies were characterized by having

a widely-dispersed ownership, the consequence of which was the separation between

ownership and control (Berle and Means, 1932). This situation in which the ownership is

spread widely between many small shareholders and control is delegated to managers

increases, on one hand, the democratisation of society but, on the other hand, issues arise

in terms of convergence between managers and shareholders’ interests (Berle and Means,

1932; Mizruchi, 2004). In fact, as described by Berle and Means, the opportunistic

behaviour of managers could serve their own interests instead of company and shareholder

interests. Berle and Means, without using the specific term, were the precursors of the

agency theory and their book triggered many other studies on these aspects.

In fact, in 1976, Jensen and Meckling theorized the principal-agent issue. They

refined the concept and underline that, in the presence of dispersed ownership, no investor

wants to bear the cost of monitoring the managers’ behaviour because the benefit is

equally split between all the shareholders. Thus, everyone wants to behave as a free rider

where they can get the benefits without the cost of supporting (La Porta et al., 1997;

Kapopoulos and Lazaretou, 2009). In this situation, managers are left without control and

incentives and they can operate in their own interest (Jensen and Meckling, 1976; Fama

and Jensen, 1983). For example, instead of paying dividends to the investors, they prefer

to use the money into risky or unnecessary projects simply to increase their personal status

and economic benefit as a managers of a bigger company (Mizruchi, 2004). This

phenomenon is called “the agency costs of free cash flow” by Jensen (1986; 1993) and it

is caused by managers’ hubris or overconfidence (Roll, 1986; Hayward and Hambrick,

1997; Malmendier and Tate, 2008).

Because agency costs reduce the value of the firm (La Porta et al., 2002; Claessens

et al., 2002), the academic world has strived to find possible solutions. In particular, Tirole

(2001) suggests three ways to align shareholders and managers’ interests and reduce

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moral hazard. First, through opportune compensation policies such as bonuses,

compensation liked to performance and stock options, and second through an appropriate

career system. Both aim to incentivise managers to act towards value creation for the firms

and shareholders. Thirdly, through an efficient corporate governance and control structure.

Goergen and Renneboog (2001; 2006) explain the importance of the independence of non-

executive directors in the board in order to efficiently monitor executives. The board of

directors has to act as an intermediary between managers and shareholders (Clayman et

al., 2012). In addition, as an external mechanism of control in this situation of dispersed

ownership, there is the market for corporate control and hostile takeovers, by which a non-

performing company is bought by an external subject and restructured (Zingales, 1998;

Goergen and Renneboog, 2006; Da Silva et al., 2004; Stulz, 1988).

However, the most obvious solution in avoiding the principal-agent problem is to

avoid the free riding problem by having a concentrated ownership or a major shareholder

interested in monitoring and actively check the managers’ performances (Shleifer and

Vishny, 1986). In this case, the opportunistic behaviours by managers are avoided but the

second agency problem is created: the principal-principal problem (Shleifer and Vishny,

1997a; Young et al., 2008) or also called private benefits of control (Grossman and Hart,

1988). In fact, in a situation where a major shareholder who has full control of the company

could, in fact, act on their own personal interest expropriating and reducing the value for

the other minority shareholders or stakeholders (La Porta et al., 2002; Da Silva et al.,

2004; Young et al., 2008). This could happen through the tunnelling mechanism (Da Silva

et al., 2004; Djankov et al., 2008), where, as defined by Johnson et al. (2000: 22), there

is “the transfer of assets and profits out of firms for the benefit of those who control them”,

that is the controlling shareholder. As identified by Johnson et al. (2000) and La Porta et

al. (2000a; 2000b; 2002) expropriation and tunnelling cases are more frequent in nations

with less protection for minority shareholders in terms of laws and regulations.

Even in these cases there are several implications that could be applied as possible

solutions. As mentioned before, the role of the board of directors is always crucial in the

corporate governance of every company and to be compliant with a good corporate

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governance code could be important (Goergen and Renneboog, 2001). However, the

enhancement of legal protection and transparent accounting could be the most relevant

solutions as well as having no separation between ownership and control (Roe, 2000; La

Porta et al., 2002).

In the real world, the principal-principal is the most common agency problem because

a major part of the world economies is characterized by concentrated ownership (La Porta

et al. 1998; La Porta et al. 1999; La Porta et al., 2002). The Berle and Means model does

not represent global reality (La Porta et al., 1999). Hence, it is important to develop

solutions to combat this most common issue in order to increase economic growth in these

countries (La Porta et al., 1998; Young et al., 2008; Morck et al., 2005).

1.1 Corporate governance definitions

The term “corporate governance” has been used since the late 1970s in the US where it

seems to have arisen during the Watergate scandals in which many important companies

were found to be involved in corruption cases (Veasey, 1993). Since that time, it has

become a term of common use and many academics have tried to find different definitions

while looking at different point of views.

For example, La Porta et al. (2000b: 4) define corporate governance as a “set of

mechanisms through which outside investors protect themselves against expropriation by

the insiders”. They look at corporate governance as a solution to the agency problem

arising by dispersed ownership. This concept was already individuated by Berle and Means

in 1932 even if they did not use the specific term “corporate governance”. A similar

definition perspective was given by Goergen and Renneboog (2006: 100): “a corporate

governance system is the combination of mechanisms which ensure that the management

(the agent) runs the firm for the benefit of one or several stakeholders (principals)”.

A different perspective was given by the Japanese economist Aoki. He defines

corporate governance as “the structure of rights and responsibilities among the parties

with a stake in the firm” (Aoki, 2000: 11). This quotation symbolises the Japanese culture

of respect and clearness.

6

Another important definition was devised by Zingales (1998: 3). He defines “a

governance system as the complex set of constraints that shape the ex-post bargaining

over the quasi-rents generated in the course of a relationship”. He, similarly to Aoki,

focused his definition on the relationship between the parts rather than a mechanism of

control.

In any case, whatever the definition, the importance of a strong corporate

governance is fully recognised to ensure business sustainability and value creation in

today’s globally competitive world (Gompers et al., 2003; Bebchuk et al., 2009; Bebchuk

et al., 2013; Claessens, 2006). In that sense, a survey conducted by Coombers and Watson

(2002) shows the relevant premium price that investors are willing to pay for a well-

governed company. In particular, they saw that in countries with lower shareholder

protection such as countries of East Europe, Africa, Latin America and Asia, investors would

pay a percentage premium an average from 22 to 30%, with maximum values of 41% in

Morocco, 39% in Egypt and 38% in Russia. On the other hand, in Western Europe and

North America, where the legal system guarantees a higher level protection to

shareholders, the same investors are definitely willing to pay a lower premium of 13-14%

for a well-governed company on average.

These data show the practical perception of importance of corporate governance for

institutional investors. Moreover, as underlined by Salacuse (2002b), the ability to attract

foreign investments depends on the corporate governance quality other than good

legislation and legal protection.

1.2 Ownership and control

There is a substantial difference between ownership and control, one that is important to

fully understand in order to grasp the subtleties of the subject. Faccio and Lang (2002)

underline that, as a definition, ownership means the cash flow rights whereas control

means voting rights. More detailed, Leech and Leahy (1991: 1418) define control “as the

power to exercise discretion over major decision making, including specifically the choice

of director”.

7

In the case of one share one vote, there is a total overlap between ownership and

control because every share is worth exactly one vote. However, most times, the real

business situation is not so democratic. In fact, there are several mechanisms that could

be applied in order to maintain control whilst sharing ownership (La Porta et al., 1999).

The most common are: multiple voting rights, ownership pyramids and cross shareholdings

(Da Silva et al., 2004; Fan and Wong, 2002).

First, there could be multiple classes of shares. In this situation, there are ordinary

shares carrying effective voting rights and there are preference shares that do not have

any voting rights but they allow the right to be paid dividends (right of cash flow) prior to

the others (Faccio and Lang, 2002; Da Silva et al., 2004). Double voting right shares or

multiple voting shares also exist, even though they are not legally allowed in many

countries (Faccio and Lang, 2002). Ginglinger and Hamon (2012) argue that the presence

of double voting shares helps the major shareholder to keep full control while increasing

liquidity at the same time. This seems to be highly advantageous for the major shareholder.

However, Jubb (2007) describes double voting rights as a system without transparency

that frustrates the other shareholders and impacts market efficiency because it creates

obstacles to the control mechanisms such as the market for corporate control.

The second most common mechanism used to split ownership and control is the use

of pyramid structures. It is the most commonly-used method in some countries because it

allows investors to keep control with a limited capital investment in the company (Da Silva

et al., 2004). It is a leverage effect which allows for “the possibility of controlling vast

resources with a limited amount of capital” (Bianchi et al., 2001: 154). Pyramid structures

happens when “firm Y has an ultimate owner, who controls Y indirectly through another

corporation that it does not wholly control” (Faccio and Lang, 2002: 372). An example

could be a company Y that owns 51% of voting rights of company X and company X owns

51% of voting rights of company Z. In this case firm X controls company Z with 51% of

voting rights despite only really owning 26% of ownership (51% x 51% = 26%) (Da Silva

et al., 2004). In the case of pyramid structure, the liquidity is negatively affected

(Ginglinger and Hamon, 2012).

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The third commonly-used method is cross shareholdings. In this method, an intricate

net of reciprocal share ownership by companies exists with the aim of avoiding takeovers

especially from foreign investors (Bloch and Kremp, 2001; Harbula, 2007).

As mentioned before, transparency and trust issues arise from the use of these

methods that can affect the efficiency of the capital markets. Moreover, there is the

consequent creation of agency and entrenchment problems (Kapopoulos and Lazaretou,

2009; Morck et al., 1988). Further still, these mechanisms in corporate governance

enhance the risks of expropriation of the minority shareholders (La Porta et al., 2000a).

According to Bloch and Kremp (2001: 107) the one share one vote practice is optimal

“because it forces someone who wants to obtain control of the company to acquire a share

of the company’s dividend stream commensurate with this control” and the deviation from

this practice is more likely when private benefits of control are larger, which is the case of

countries with a low level of shareholder protection (Grossman and Hart, 1988; Harris and

Raviv, 1988). On the other hand, La Porta et al. (2002) see a correlation between firms

with higher valuations and countries with better protection of minority shareholders,

because, if protected, the investors are willing to invest more.

1.3 Models of corporate governance

A company life starts from a situation in which the firm is private and both ownership and

control are concentrated in the hands of a single person or a single family (Becht and

Mayer, 2001). After that, the normal evolution of a company whose operations have grown

and needs more sources of finance is to go towards IPO and become a listed company.

From that point, Becht and Mayer (2001) describe several ways that a company could

pursue after the IPO depending on the system of corporate governance that a country

applies.

In fact, listed companies in Continental Europe usually tend to maintain concentrated

control. This can be achieved with “neutrality” when, in the situation of one share one vote,

the founder has majority control and ownership. Alternatively, this can also be achieved

with “lock in control”, which refers to when the founder sells part of the ownership while

9

maintaining control, and with “leverage control”, in which, with the use of one of the

methods discussed, voting rights are leveraged over cash flow rights and majority control

is combined with dispersed ownership (Becht and Mayer, 2001). The situation is different

in the UK, where, after being listed, ownership of a company is dispersed as well as control

(Becht and Mayer, 2001).

As mentioned earlier, there are different agency problems that arise from these

different situations. Accordingly, there are different solutions. However, it is important to

note that the main risk in the situation where the control is strongly retained by a major

shareholder that is family-based is a problem of dynastic management (Caselli and

Gennaioli, 2013). Kapopoulos and Lazaretou (2009: 160) define dynastic management as

“the intergenerational transmission of control over assets, a typical feature of the family-

owned firms”. This could be a source of inefficiency if the successor at the head of the

company does not have the talent to run the firm (Kapopoulos and Lazaretou, 2009).

Hall and Soskice (2001) distinguish the two major capitalist models in relation to how

a firm coordinates itself with the other actors in the economy: the coordinated market

economies (CME) such as Germany, Japan, Sweden, Austria and the liberal market

economies (LME) such as the U.S., the U.K., Canada, Australia, New Zealand, Ireland. The

basic point is that in the CME the political institutions try to encourage cooperation between

the players in the economy. In the LME, however, the free market is the focus, and the

political institutions try to encourage competition between the actors (Hall and Soskice,

2001). Consequently, the policies have to fit in with the specific principles of the model

otherwise they could create problems or they might not be able to be implemented by the

businesses (Wood, 2001).

Specifically, the CME is more focused on the relationship between stakeholders, such

as in the job market where there is high level of protection for labour. Therefore, companies

tend to invest in improving employee skill levels and to collaborate effectively with trade

unions. Also they tend to push towards cooperation with other firms. This structure is more

inclined to focusing on quality and on the creation of incremental innovation of existing

products (Hall and Soskice, 2001; Vitols, 2001).

10

On the other hand, the LME system tends to be more individualistic and standardized,

where the employees have general skills and the job market is more dynamic. In this

situation, which is also characterized by a usual absence of cooperation between different

firms, they are more able to produce radical innovations, born from new projects that are

completely detached from the previous ones (Hall and Soskice, 2001; Vitols, 2001). In

general, those differences could be seen as a specific competitive advantage, where

countries focused their businesses on their strength points (Porter, 1980).

Other authors have described corporate governance systems. For example, Jacoby

(2000) splits the two patterns defining the Anglo-American system as a shareholder

system, a market-outsider system or stock-market capitalism. Meanwhile, the system,

which Germany is the main exponent of, is the relational-insider system, the dedicated-

capital system, and welfare capitalism.

More precisely, in addition to these two models Clarke (2016) describes also the Latin

model and the Japanese model, that are similar to the stakeholder model, even if Latin

economies, such as France, Italy and Spain, are characterized by having a more conflict-

based relationship between employers and employees, while the Japanese model is

characterized by the importance of the network (Clarke, 2016).

Instead, Hansmann and Kraakman (2000) show that, after the Second World War,

four models of corporate governance had been developed: the manager-oriented model

(in the US), the labor-oriented model (in Germany), the state-oriented model (in France

and Asia) and the shareholder-oriented model (in the US and the UK).

The manager-oriented model, also called the managerialist model, was a model

developed in the US from the 1930s to the 1960s whose principle was that empowering

professional managers of large business corporations with a great amount of discretion

could incentivise them to act in the interest of the corporation and, consequently, increase

the performance of the firm and public interest (Hansmann and Kraakman, 2000). It was

believed that the free market in managerial talent acts as a system of control. However,

this model collapsed during the 1970s when the agency problem theory demonstrated that

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in the case of great discretion, managers act for themselves rather than in company

interests (Hansmann and Kraakman, 2000).

The labour-oriented is the historical model developed in Germany, and it is another

name for the CME of Hall and Soskice (2001). Again, it is characterized by a strong

relationship and collaboration between the various stakeholders, especially employers and

employees. Firms invest in their employees and there is the employee participation in

company decisions through the presence of workers’ representatives on the board. This

involvement of employees, that could be also extended with high levels employee welfare

or by profit-sharing with the workers, can create a sense of belonging that secures loyalty

and commitment at work (Eibenstein, 1975). All this fits perfectly with competitive

advantage focused on quality and incremental innovation. Therefore, the enthusiasm for

employee participation resulted in the expansion of the German model into Continental

Europe (Hansmann and Kraakman, 2000). However, the most relevant criticism of this

system is that worker voting participation could lead the company to making inefficient

decisions, paralysis or weak boards due to the lack of interests’ focus. Also, the costs

arising from these negative effects are likely to exceed the potential benefits from

employee participation (Hansmann and Kraakman, 2000).

The state-oriented model is characterized by the prominent role of the state and the

government within the private businesses. This is practically translated into a “substantial

discretion in the hands of government bureaucrats over the allocation of credit, foreign

exchange, licenses, and exemptions from anti-competition rules” (Hansmann and

Kraakman, 2000: 7). This model, unlike economic liberalism of Adam Smith, was present

in France, and in the Soviet Union, and it is currently in use in China, where the state plays

a principal role in the economy (Hansmann and Kraakman, 2000). However, this model

suffered when President Mitterrand abandoned state ownership in favour of private

companies during the 1980s in France and then when the Soviet Union collapsed in the

1990s (Palmer, 2011).

The shareholder-oriented model is the LME described by Hall and Soskice (2001). As

mentioned before, this system is characterized by a market focus in which tight

12

regulations, high levels of transparency and fast movement of capital create a short term

perspective (Kapopoulos and Lazaretou, 2009). The general aim is the maximization of

shareholder value and this shareholders benefit is prioritised over the interests of other

stakeholders (Kapopoulos and Lazaretou, 2009). However, Jensen and Meckling (1976)

argue that the maximisation of shareholder value is equivalent to the maximisation of the

value of every stakeholder, because the shareholder is a residual claimant who receives

payment only after that every other obligation has been fulfilled. However, both this

perspective and model are characterized as “greedy capitalism”, one that was highly

criticised during the recent financial crisis.

In terms of differences, it is important to note that no one corporate governance

system is superior to the others, they are simply different (Otten et al., 2006; Shleifer and

Vishny, 1997b). In particular, the Anglo-American system is characterized by the

importance of the capital markets, and the main investors are the financial institutions

such as mutual funds, pension funds and insurance companies (Becht and Mayer, 2001).

The weaknesses of this system are the high volatility, the focus on the short term and the

usually too fragile corporate governance practices that brought about the last financial

crisis (Clarke, 2016).

On the other hand, in Continental Europe there are relatively few companies listed

on the stock markets and the high level of concentration of ownership and control results

in strong ties between creditors, major shareholders and managers, who are usually

members of the major shareholder’s family (Becht and Mayer, 2001; Da Silva et al., 2004;

Claessens et al., 2002; Faccio and Lang, 2002). The ownership and thus the main investors

in the stakeholder model are families, other companies or banks. In contrast, in Japan,

some firms are part of ‘keiretsus’. They are a group of industrial companies financed by a

bank, in which there is a dense network or reciprocal cross ownership (Becht and Mayer,

200; Clarke, 2016).

With a specific focus on various European countries and the US, Barca and Becht

(2001) have published the first exhaustive work focused on corporate control, with also

13

some focus on ownership, titled The control of corporate Europe (Da Silva et al., 2004;

Goergen and Renneboog, 2006).

Bloch and Kremp (2001) analyse the situation in France. Even in France, they see

high levels of ownership and control concentration in both non-listed and listed companies

as well as the CAC 40, the main index for the top 40 firms for market capitalization. More

specifically, the largest investor owns 66% in non-listed firms, 52% in listed firms and

between 20-30% in the CAC 40 (Bloch and Kremp, 2001). The second largest owner

retained 18% in non-listed companies, 10% in listed and between 5-10% in the CAC 40.

In terms of type of investor, individuals and families were the most significant type in the

non-listed firms, while the holdings were the most important for the listed ones (Bloch and

Kremp, 2001). On the other hand, for the CAC 40 firms, bank and insurance companies

were the most relevant, even if the role of families and individuals was also important. In

particular, “for the CAC 40 firms, individuals are not the largest blockholder, but when they

effectively are present as blockholders, they hold around 30 per cent of the voting rights

and have the control in facts” (Bloch and Kremp, 2001: 123). In the past it was common

the presence of cross shareholding Between French firms. This system was called “financial

core” and it started during the privatizations in the late 1980s (Bloch and Kremp, 2001).

However, the aim, a nationalistic one to prevent French firms from foreign investors, did

not have success (Bloch and Kremp, 2001).

In Germany, the general economy is characterized by a vast presence of small and

medium-sized enterprises (SMEs) and consequently, the ownership and the control are

highly concentrated (Becht and Böhmer, 2001). Even in DAX, the German stock market

index which includes the 30 blue chip companies, the firms are generally owned by a

significant majority shareholder. The role of the banks as universal banks, acting both as

commercial and investment banks, is also historically so important. Specifically, Becht and

Böhmer (2001) identify Allianz AG and Deutsche Bank AG as dominant blockholders in

many cases.

Italy is also characterized by a high concentration of direct ownership in both unlisted

and listed firms (Bianchi et al., 2001). Pyramid structures are very common, and Bianchi

14

et al. (2001: 154) state that “50% of all Italian industrial companies belong to pyramidal

groups”. This makes it difficult to analyse the real control of the companies. Generally,

families and the state play a significant role as owning companies, and in contrast to the

situation in Germany, the role of banks is limited. This was historically a problem for the

financing and the growth of the firms, that was solved by private financing through families

and public financing through the state (Bianchi et al., 2001). In recent years, the central

role of the state has decreased as many cases of privatizations have occurred. It has to be

noted that Italy has a great level of transparency and disclosure after the Draghi Law of

1998, in which ownership of more than 2% has to be disclosed (Bianchi et al., 2001).

In Spain, the role of the state in large companies was prominent before 1994, but

after that year companies were privatized and the state as a shareholder practically

disappeared (Crespí and García-Cestona, 2001). In Spain there is highly concentrated

ownership but, in comparison with the rest of the Europe, Spanish levels are the lowest,

apart from the UK. Banks are not the major shareholders except in the banking and

communication sectors (Crespí and García-Cestona, 2001). Mechanisms to separate

ownership and control are not common in Spain, because the second shareholder is usually

so significant (Crespí and García-Cestona, 2001).

Unlike all the nations described up to this point, the UK is characterized by a high

proportion of listed firms, high investors protection, high level of transparency and a diffuse

ownership structure (Goergen and Renneboog, 2001). Moreover, the most important type

of investor are the institutional investors such as mutual funds, insurance companies and

pension funds. The percentage of equity held by institutional investors rose from 30% in

1963 to 60% in 1992 (Stapledon, 1996) compared of only 20% in Germany (Goergen and

Renneboog, 2001). Institutional investors usually hold a maximum amount of 5.5% of

shares in a company. This can lead to a risk of a passive stance from investors due to a

free riding problem, in which there is no incentive to monitor the management (Goergen

and Renneboog, 2001). It is important to note that, over the years, the UK has developed

important corporate governance codes containing best practices, such as the Cadbury

Report in 1992 which specified the importance of the role of the board of directors and the

15

importance of the independent non-executive directors; the Greenbury Report in 1995

regarding the correct remuneration for the executives; the Hampel Report in 1998 as a

revision of the previous Reports and finally the UK Corporate Governance Code in 2010

containing the best practices in corporate governance to which the listed companies should

comply (Goergen and Renneboog, 2001). Moreover, as Branson (2001) argues, the

evolution in the principles in corporate governance codes in the UK have influenced

corporate law reforms in neighbouring countries such as France and Germany.

The academic world has attempted to find an explanation for why the systems and

the structure of corporate governance differ across the countries, and why there is a certain

development in one country that is different in another one. Kapopoulos and Lazaretou

(2009: 168) argue that “Corporate governance systems evolve in response to underlying

institutional necessities”. Again, Goergen and Renneboog (2001: 280) state that “the

structure is also shaped by regulation”. In fact, the importance of laws and regulations is

primary in the sense that, as logic suggests, companies try to adapt themselves in the

most efficient way to the rules imposed by a country (Da Silva et al., 2004).

La Porta et al. (1997; 1998; 1999) split the world in two parts in relation to the legal

origin: common law or civil law. Specifically, French civil law offers weak protection for

investors, for example against expropriation; German and Scandinavian civil law offers a

medium protection level and English or Anglo-Saxon common law offers a high level of

protection (La Porta et al., 1997; La Porta et al., 1998). They observe that countries with

poor investor protection, as in the case of French civil law, results in more highly

concentration of ownership (La Porta et al., 1997; La Porta et al., 1998). On the other

hand, common law offering good accounting standards and high level of shareholder

protection results in more widespread ownership (La Porta et al., 1998). Hence, the

countries with common law have developed capital markets, while countries with civil law

are characterized by the large use of debt as financing, therefore the role of the banks has

become significant (La Porta et al., 1999).

16

1.4 Is there a convergence?

As globalization expands and relationships between countries become more important and

stronger, a logical consequence is try to see if there is a convergence, a conflict or a

cooperation between systems of corporate governance and cultures that were historically

different (Salacuse, 2003; La Porta et al., 2008). Many studies have been done by many

authors with the aim to see if there is convergence or not in the systems of corporate

governance around the world.

Karl Marx could be considered the first convergence theorist. In fact, the Marxist

philosophy believed in proletarian revolutions and the consequent convergence towards a

new socialist and more equal economic and social system as a response against the

oppressions of the capitalism (Streeck, 2010).

In recent years, the current debate about the convergence of corporate governance

systems was forcefully made by Hansmann and Kraakman (2000) (Yoshikawa and

Rasheed, 2009; Siems, 2010). As mentioned before, these two authors (Hansmann and

Kraakman) describe the development of four models of corporate governance that

originated in the second part of the 20th century: the manager-oriented, the labor-oriented,

the state-oriented and the shareholder-oriented.

They argue that “the triumph of the shareholder-oriented model of the corporation

over its principal competitors is now assured” (Hansmann and Kraakman, 2000: 33) and

they define the shareholder-oriented model as the standard model to which there will be

convergence. They offer two reasons for this. First, they state that the standard model has

gained supremacy while the other three models had failed. Second, and most importantly,

the worldwide competitive success gained by the British and American companies has

contributed to the diffusion of their shareholder-oriented model around the world. The last

one contributed to the influence of the concept of economics and finance, to the diffusion

of widespread ownership in the other developed countries and to the implementation of

new regulations focused on solving the principal-agent problem as well as for the protection

of minority shareholders.

17

Their final conclusion is that, despite the apparent divergence and differences in

corporate governance between the countries around the world, they see an important

convergence of the regulations towards a widespread shareholding system with the

improvement in the protection of minority shareholders and for curtailing the opportunistic

behaviour of managers. Thus, even there are still differences in terms of corporate

governance models, concentrated ownership even in large corporations, capital markets

and corporate culture, they predict that with the development of equity markets in Europe,

there will be convergence towards the standard system (Hansmann and Kraakman, 2000).

Other authors agreed with their idea and prevision of convergence while many other

disagree. Therefore, the debate is still open (Krenn, 2014). Sudarsanam and Broadhurst

(2012) argue that even if the German corporate governance system continued to remain

largely unaltered, the pressure from the globalization of stock markets would push for new

regulation for the protection of the shareholders’ interest. Thus, even the resistance to

change in traditional corporate governance, “in the end was forced to yield to the

shareholder-oriented Anglo-American style governance practices” (Sudarsanam and

Broadhurst, 2012: 265). Krenn (2014) argues that the US and the UK, considered

examples for the best practices in corporate governance matter, have become the

benchmark for governance codes around the world. However, he observes that the

convergence in corporate governance code practices sometimes may be more of a formal

aspect rather than substantial (Krenn, 2014). A similar conclusion has been given by

Yoshikawa and Rasheed (2009). They argue that there is still limited evidence of

convergence towards a unique model of corporate governance and the similarities that

seem to be arise between the countries, in reality, are more form than substance, thus

convergence is just an illusion (Yoshikawa and Rasheed, 2009).

Fiss and Zajac (2004) focus their research on historical data for 100 publicly-traded

companies in Germany. They see that these German companies were adapting to the

Anglo-Saxon model even if a lot of these firms were still resisting this pressure by

maintaining their traditional model of corporate governance: the stakeholder model.

Moreover, the US corporate scandals of the early 21st century have raised concerns about

18

the effectiveness of the Anglo-Saxon shareholder model. This slowed down and even

stopped diffusion between the German firms. Fiss and Zajac (2004: 530) conclude their

research talking about “the significant non-adoption of a shareholder value orientation

among German firms”.

A different outcome has been reached by Lane (2003) about her study of change in

the corporate governance of Germany. Similar to Fiss and Zajac (2004), she observes the

tendency of changing from the classic German coordinated market economy to the Anglo-

American liberal market economy. She recognises the erosion of the German variety of

capitalism and convergence towards the Anglo-Saxon corporate governance system which

had been especially pushed by the big German banks and insurance companies, and also

by the international German listed firms (Lane, 2003). This lobby power has started to

receive consensus from the politicians and, consequently, has triggered a change in both

the business culture and structure of the German system (Lane, 2003). Again, similar to

Fiss and Zajac (2004), she recognises that the Enron and the US scandals of 2001 has

decreased the trust in the American system. However, she maintains that the Sarbanes-

Oxley Act regulation that arose after those scandals has restored investor confidence

(Lane, 2003). The final conclusion that she reached is that the German system has not yet

fully converged, but the logical tendency and prediction is of convergence towards the

Anglo-American system in the next few decades (Lane, 2003).

Instead, a similar conclusion about Germany to that of Fiss and Zajac (2004) has

been reached by Vitols (2001). He argues that “the UK and Germany do not appear to be

converging to one best model of corporate governance” (Vitols, 2001: 359). Thus, despite

the globalization and financial pressure towards the Anglo-Saxon model, it seems that both

Germany and the UK are maintaining their own model without changing and converging to

a different one. Also, he underlines that the countries are incrementally changing in order

to improve their own existing model instead of changing and converging towards a totally

new one (Vitols, 2001).

More generally, Hall and Soskice (2001) in Varieties of Capitalism argue that, despite

the trend of globalization, the different varieties of capitalist economy remain “path

19

dependent” without converging. In particular, they argue that the role of the state is to

provide incentives to the business with respect to the principles of their own model. If a

state tries to modify the regulation in a way that is attempting to change its own model of

corporate governance, those reforms are likely to fail (Hall and Soskice, 2001). It happened

both in Germany and in the UK, where attempts to change or introduce something from

an outside model failed (Hall and Soskice, 2001).

The concept of “path dependence” theory was developed by Bebchuk and Roe (1999).

In this theory, they argue that the corporate governance system that a country currently

applies is strongly influenced by the traditional model of corporate governance developed

in the past. In other words: “an economy’s initial ownership structures directly influence

subsequent choices of ownership structure” (Bebchuk and Roe, 1999: 169). They explain

this phenomenon with two reasons.

First, for efficiency reasons, companies have adapted their own structure to the

system and a change in this could be extremely costly. In particular, the culture, the

political orientation, the market and the ideology linked to the traditional system tend to

impede change and convergence towards a new system (Bebchuk and Roe, 1999).

Second, some corporate players involved in the relationship inside the traditional

corporate governance system act as rent-seekers and they have the power to entrench

themselves and impede changes that could reduce their private benefit of control (Bebchuk

and Roe, 1999). Overall, given these reasons, Bebchuk and Roe (1999) explain why,

despite the convergence happened in the world through the globalization, the corporate

governance of different countries remains different and it does not change or converge

towards a new one (Bebchuk and Roe, 1999).

Another important study, considering the legal origins, was undertaken by La Porta

et al. (2008). They also explain the important role of globalization that played and

continues to play in the exchange of ideas and in the increase of global competition. La

Porta et al. (2008) argue for a reciprocal exchange in regulations between common and

civil law. However, they recognise that “the common law approach to social control of

economic life performs better than the civil law approach” (La Porta et al., 2008: 327),

20

thus in a general situation without systematic shocks it is likely to see a continuous process

of liberalization. However, it has to be noted that this paper was published in June 2008

exactly a couple of months before the onset of the financial crisis.

Many authors believe neither the shareholder oriented model nor the stakeholder

oriented model will be superior over the other. Instead, the convergence will be at a

medium point between the two, in which every model can take the best from the other

and thus improve their effectiveness (Salacuse, 2002a; Salacuse, 2003; Aguilera and

Jackson, 2010). Specifically, Salacuse (2002a) explains that the presence of intangible

aspects is vital in corporate governance systems. In fact, the system of corporate

governance developed by a country is not merely a static model; it contains the values,

tradition, the history and the culture of a society (Salacuse, 2002a; Salacuse, 2003; Roe,

1993; Bebchuk and Roe, 1999; Clarke, 2016). Thus, it is not so easy to entirely replace a

system of corporate governance (Salacuse, 2002a).

Da Silva et al. (2004) were surprised because, despite strong competition and

globalization around the world, the level of regulations in the area of corporate governance

have not further converged. This could be explained by economic factors regarding

ownership and control of the firms (Goergen and Renneboog, 2003). In particular, it was

seen that after an IPO German companies continue to maintain a major shareholder that

retains full control. In contrast, after an IPO ownership in the UK is going to be widespread

as well as the control of the company (Goergen and Renneboog, 2003).

A thorough explanation of this phenomenon lies in the current regulations. In fact,

concentrated ownership in large corporations still remains frequent in many parts of the

world because the weak corporate governance regulation allows the major shareholder to

obtain and maintain the private benefits of control (Bebchuk, 1998). Hence, if the

regulations do not change, the control remains concentrated and there will not be

convergence towards the Anglo-American practice of widespread control (Bratton and

McCahery, 1999).

A similar conclusion was previously reached by Roe (1993). He observes that the

prediction made about an increasing level of ownership fragmentation in worldwide

21

companies may become a reality in the future, but for the moment it remains only a

prevision. In fact, in both Germany and Japan, concentrated ownership practise has

increased instead of decreasing (Roe, 1993). Thus, we are quite far from a state of

convergence.

Classically, Berle and Means (1932) considered the future expansion worldwide of

the US model characterized by firms with widespread shareholders and consequently, the

separation between ownership and control. In reality, the evaluation of that convergence

prevision is critically summarized by a laconic sentence from La Porta et al. (1998: 498)

“Berle and Means have created an accurate image of ownership of large American

corporations, but it is far from the universal image”.

Again, the pressure from the financial markets, globalization and the growth of

successful multinational firms has pushed the global corporate governance systems

towards the shareholder oriented model (Palmer, 2011; Branson, 2001). Furthermore, the

companies and the systems that failed to conform to the Anglo-Saxon model has been

under attack (Jacoby, 2000). Thus, there has been a more or less clear tendency of a

convergence towards the Anglo-Saxon system (Siems, 2010), but for many authors this

convergence is still far off, and maybe it never will be achieved (Palmer, 2011; Jacoby,

2000; Clarke, 2016; Otten et al., 2006), especially after the last financial crisis (Siems,

2010). For many other authors the convergence is not towards the shareholder oriented

model but it will be towards a hybrid model that will take elements from both the main

models (Aguilera and Jackson, 2010; Siems, 2010).

An important and useful insight is offered by Branson (2001). He states that there is

a convergence in corporate governance structure and practices of larger companies. This

is because the bigger and, especially, international corporations “feel considerable pressure

to adopt the best of such practices and structures gleaned from a global inventory”

(Branson, 2001: 324). This is an important academic focus on the similarities that big

companies around the world are going to adopt. In addition, his concept of convergence is

different from the other authors because he refers to convergence as a limited

phenomenon instead of a massive global one. In fact, he states that academic studies that

22

sustain the convergence effect in corporate governance are focused only on the US, Japan

and Europe.

However, today’s world comprises many effervescent new economies such as nations

from Asia, Africa and South America. They are characterized by the importance of their

own culture and economic systems and are, therefore, difficult to change and converge

towards a new system (Branson, 2001). He also sustains an idea of convergence in specific

areas “such as financial accounting or disclosure standards” rather than a total

convergence (Branson, 2001: 362).

In terms of reaching a final conclusion, it can be seen that convergence is an

extremely complex debate with totally different opinions. Moreover, the concept of

convergence has many different variables and it is unlikely a clear total trend will emerge.

Also, as stated by Gilson (2001: 34) perhaps “there can be no general prediction of the

mode that convergence of national corporate governance institutions may take”. To

forecast so exactly could be so difficult.

1.5 Research proposition

The literature review on corporate ownership and corporate control has led to the

conclusion that there is a controversy in whether there is convergence or not in corporate

governance models in today’s globalized business world. The issue of corporate control,

and occasionally ownership, in Europe is specifically illustrated in the book The control of

corporate Europe edited by Barca and Becht (2001). They collected the work of many

researchers related to different numerous countries in Europe, as detailed previously.

This study, however, will focus solely on research on the most economically important

countries in Europe: Germany, France, Italy, Spain and the UK. In particular, it will analyse

the ownership structure of all the companies listed in the main stock indexes. These

companies are called blue chip firms.

The aim of this analysis is to consider the current situation of ownership in blue chip

companies in order to see if there is a convergence towards the Anglo-American corporate

23

governance structure or if these firms maintain the particularity of the other model of

corporate governance characterized by concentrated ownership.

It is expected that the analysis will find these major companies of similar structure,

as argued by Branson (2001), characterized mainly by widespread ownership and owned

principally by institutional investors, even if they stem from different countries follow

different traditional models of corporate governance. Thus, the important role of

institutional investors and especially of international and foreign capitals form foreign

investment funds is envisaged. The validity of these ideas and predictions will be then be

checked.

24

2 Methodology

La Porta et al. (1998; 1999) analyse the ownership structure of the largest 20 companies

in 27 countries. They also try to detect the control structure but, as argued by Becht and

Mayer (2001), the analysis of control was rudimentary and they sometimes confused the

notions of ownership and control. Similarly, Roe (2000) analyses how the largest 20 public

firms in many countries of the world are owned and if they are widely held or not. Becht

and Mayer (2001) state that detecting and analysing the full intricate nature of control in

the firms is extremely complex because of the lack of transparency and the use of

mechanisms such as pyramid structures. Moreover, it is almost impossible to unearth the

real control situation for a large number of companies. Thus, if the control was analysed,

the sample of study would be so limited and, moreover, it would not inform so much about

convergence in corporate governance.

For these reasons, taking the example of La Porta et al. (1998, 1999), Roe (2000),

Faccio and Lang (2002) and for some countries from Barca and Becht (2001), it has been

decided to focus on the ownership and analyse the ownership structure even if this does

not explain the companies’ control. Also, it has to be noted that in countries such as the

UK, where there is the practice of one share one vote, ownership laps perfectly with the

control, assuming the absence of pyramid structures.

Understanding the ownership structure is the first important piece of information

required to become acquainted with a company and to understand their internal dynamics.

Furthermore, the literature related to the different systems in corporate governance and

the convergence theory in corporate governance refers to ownership: either dispersed

ownership or concentrated ownership. To summarise, corporate ownership is an important

concept, and it is important to try to simplify difficult matters in research.

As mentioned earlier, it has been decided to focus the research solely on Europe

without taking other countries in the world into account. This is because European

countries, and especially Western European countries, are similar in terms of history,

tradition, development, politics, culture and values. On the other hand, nations such as

India, Korea and China have totally different characteristics and variables that influence

25

the ownership structure (Claessens et al., 2000). Thus it would be difficult to compare and

fully understand the convergence, or the lack of it, in such different situations.

Furthermore, to further narrow the research only specific countries in Europe have

been selected: Germany, France, Italy, Spain and the UK. Those specific countries were

because they are the most relevant in the literature as they mainly represent the different

systems of corporate governance and also because they are the most important countries

in Europe from an economical point of view. In fact, according to Eurostat (n.d.) and World

Bank (n.d.) from an overall GDP of 14,635 billion euro in 2015 for the 28 E.U. countries

(without considering the Brexit phenomenon) these five countries alone account for

71.79% (10,507/14,635) of that total GDP. More specifically, Germany accounts for 3,033

billion euro, France for 2,181 billion euro, Italy for 1,636 billion euro, Spain for 1,081 and

the UK for 2,576 billion euro (Eurostat n.d.; World Bank, n.d.).

To further focus the research, it has then been decided to only analyse the main stock

market index in every of those countries, containing the most capitalized companies, also

defined as blue chips. Specifically, the ownership structure of all the companies listed in

the German DAX 30, in the French CAC 40, in the Italian FTSE MIB, in the Spanish IBEX

35 and in the British FTSE 100 will be analysed. However, the stock index Euro Stoxx 50,

which contains the biggest European firms, will not be considered. This is because it

contains a mix of companies from various European countries and thus it is not possible to

analyse the specific particularities of corporate ownership in single countries in order to

make comparison with the others.

It is important to underline again that the aim of this research is to analyse the

ownership structure in the most capitalized companies in Germany, France, Italy, Spain

and the UK, with the aim to compare the results and see if they are similar and thus if

there is a convergence in the corporate governance systems.

Moreover, these focus filters will be applied because almost all the convergence

studies keep their analysis general, discussing general convergence trends or general non-

convergence trends in corporate governance around the world. However, there are also

great differences between companies within the same country. The business environment

26

is characterized by the presence of many different types of firms of different sizes and

characteristics. Thus, try to find an overall convergence it is probably not the best

approach. In fact, the convergence process is gradual, and it is not always so clear-cut. It

is, therefore, important to compare similar types of companies in order to obtain a clearer

overview of the evolution of the phenomenon.

For example, Branson (2001) identifies the likely convergence in big firms, because

the common factor in these types of firms is the stock market. However, the dynamics in

small firms are totally different. A general analysis on convergence maybe does not allow

for explanation and detection in the differences that characterize different categories of

companies. Therefore, due to these different characteristics between small and large firms,

it is felt more worthwhile to analyse them differently in order to see if there is convergence

of not. Without using this focus, the risk of misleading could become an issue.

2.1 Data

The ownership data was downloaded by Bloomberg. In fact, Bloomberg Terminal provides

a wide list of shareholders for all the companies studied. After that, the data was cross-

checked with the database of Standard Ethics Ltd (http://www.standardethics.eu/), a

sustainability rating agency which also focuses on corporate governance analysis. This

allowed for a verification of the data in order to eliminate eventual errors. Bloomberg has

been chosen because it contains the whole list of shareholders (excluding of course the

floating shares owners) and, furthermore, these data were easy and fast to download.

2.2 Methodology of data analysis

After having downloaded the data to Excel, various forms of analysis were undertaken in

order to gain a deeper understanding of the ownership situation and the consequent

evaluation about the convergence.

Initially, taking the example from Barca and Becht (2001) and in particular from

Agnblad et al. (2001), the major 10 shareholders for every company in every selected

index were taken (for example, all 10 shareholders of all the companies in the DAX 30),

http://www.standardethics.eu/

27

and the maximum and minimum value of those were calculated to obtain an idea of the

breadth of the range. Then the median and the mean values of the ownership for the first

10 shareholders of every company were calculated. The aim of these calculations was to

analyse the ownership situation and related characteristics of every single country (country

by country).

After that, similar to Barca and Becht (2001), Goergen and Renneboog (2006) and

Da Silva et al. (2004), a general summary table and graph including the average size of

the ownership for the major 10 shareholders in all the countries was constructed. Then,

another graph was made focusing only on the largest shareholder. All these graphs allow

for a comparison between the data of the different countries.

Then, taking inspiration from Goergen and Renneboog (2006), an analysis of the

shareholders holding more than 25% of ownership was done. More precisely, it was done

in two ways: first, by counting only the largest shareholders with ownership exceeding

25%, then relate that number obtained with the total companies in the index in order to

see the percentage of companies with more than 25% in the index. Second, by counting

all the shareholders, not only the first, with ownership greater than 25%. This is to obtain

a general idea of the numbers of shareholders holding more than 25%.

After that, the frequency was analysed. Following the examples of Gugler et al.

(2001) and Bloch and Kremp (2001), the ownership was split into ranges of 10%, from

0% to 100% (e.g. 0-10%; 10-20% and so on). It was then calculated to see how many of

the largest shareholders fell into which range. The aim of this was to see which the most

frequent range of ownership is. As usual, the analysis was conducted for both single

countries, in order to identify the specific characteristics of the single country, and all the

countries together, in order to compare the results between the countries.

Similar to Barca and Becht (2001), a detailed analysis on the types of shareholders

was carried out. This was focused only on the largest shareholders, and the investors were

classified as: institutional investors (such as mutual funds, pension funds, investment

advisors, hedge funds, insurance companies), government, foundations, individuals and

families, holding companies and trusts, banks, corporations. In this sense, the data

28

downloaded from Bloomberg were improved by internet research in the cases of

unclassified shareholders or ambiguous classifications. The number of largest shareholders

belonging to a specific class was analysed in to see which the most important type of

investors in a specific country are. Also in this case, this analysis and the consequent

graphs was applied to both single countries and on a more general level with all the

countries. Furthermore, from the number of investors belonging to the various classes, the

percentages of the weight of a specific type of investors on the total was analysed in order

to attain the importance. Also, a brief focus on the nationalities of investors and on the

name of the most frequent investors was given so that the presence of foreign capital in

the firms of a specific index could be identified.

Finally, in trying to address the research question on convergence, a statistical

analysis on the average of the largest shareholders in every one of the 5 indexes was done.

It was chosen to focus on an analysis of the largest shareholders because it can be assumed

that, from the major shareholder, it is possible to ascertain if the ownership of a company

is widely held or concentrated. In fact, the aim is to see if the ownership structure in the

5 countries analysed is similar or not in terms of being widely-dispersed or concentrated.

In other words, if the 5 groups are statistically different or not. In practical terms, the data

of the first shareholders of all the firms of all the countries was inserted in SPSS in order

to run a one-way ANOVA test. More precisely, a post-hoc Scheffe test was used with a

significant value (alpha) of 0.05 so as to see which specific groups differ.

It has to be noted that in the literature of convergence in corporate governance no

one has undertaken this specific quantitative investigation with statistical analysis.

However, it could be a much more reliable way of detecting similarities or differences in

comparable companies in different countries, in order to arrive at a conclusion from a

statistical point of view. A statistical analysis on the similarities or differences of companies

could be a new approach in evaluating if there is convergence or not in corporate

governance systems.

Everything will be shown and analysed in detail in the next section.

29

3 Data analysis

In this part, all the output graphs and tables mentioned in the methodology are displayed.

Sequenced logically, the main trends and the particularities of the ownership per country

will be analysed. Then all the data will be collated together in order to gain a complete

overview, and to be able to compare the differences between the countries. Finally, the

statistical analysis will be presented with the aim of detecting if these 5 groups of countries

are similar or not. That is, if convergence in the structure of corporate governance

ownership exists or not.

3.1 Germany

Figure 1 is a general graph showing the maximum value, minimum, median and mean for

the major ten shareholders in the DAX 30 companies. The largest shareholder with the

highest value of ownership (maximum) holds 51%, the second shareholder 16.75% and

the third 12.55% while, respectively, the minimum values are 4.60%, 2.41% and 1.41%.

It has to be noted that in this case, as well in the others, negative minimum values of

ownership, such as for the fifth shareholder -2.59%, are due to short positions held by

some investors.

-5

0

5

10

15

20

25

30

35

40

45

50

55

Largest 2nd 3rd 4th 5th 6th 7th 8th 9th 10th

% o

f o

wn

ersh

ip

Shareholders

Figure 1 DAX 30 ownership data

Maximun Median Mean Minimum

30

Figure 2 focuses on the important data of median and, above all, mean. On average,

the largest shareholder holds 13.89% of the company shares. The second owns, on

average, 6.34%, the third 3.95%, the fourth 2.68% and from the fifth to the tenth the

ownership is under 2%. It is important to note that the median for the largest shareholder

is 8.17%, a value that is dramatically different to the mean value of 13.89%. When the

mean is greater than the median, the distribution is asymmetric and the majority of data

are smaller than the mean. Moreover, in this case, the mean is lifted by the presence of

three companies with a high ownership concentration, with 51%, 35.99% and 31.51%

respectively.

In terms of frequency, Figure 3 indicates that 17 of the 30 largest investors in the

DAX 30 own a range of shares of 0-10%. 6 of the 30 own shares between 10% and 20%

and only 4 of the largest shareholders fall into the range of 20-30%. However, there are 2

cases in which the major shareholders own between 30% and 40% and even one who, as

seen before, owns between 50% and 60% of the company shares.

0

2

4

6

8

10

12

14


% o

f o

wn

ersh

ip

Shareholders

Figure 2 DAX 30 median and mean data

Median Mean

31

With regards the types of investors (Figure 4), focusing only on the largest

shareholders in the DAX 30 companies, institutional investors are the most common

shareholders. In fact, they are the largest investor in 13 of the 30 companies. Also, as the

largest shareholder in 6 companies, the government plays an important role. Finally, it is

important to note that individuals and families are the major shareholder in 5 firms, and

holding companies and trusts in 3. However, holding companies and trusts are usually also

owned by a family.

0

2

4

6

8

10

12

14

16

18

0-10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% 70-80% 80-90% 90-100%

Freq

uen

cy

Largest shareholders

Figure 3 Frequency of ownership in DAX 30

0

2

4

6

8

10

12

14

Institutionalinvestors

Government Foundations Individuals andfamilies

Holdingcompanies and

trusts

Banks Corporations

Nu

mb

er o

f in

vest

ors

Types of investors

Figure 4 Types of largest investors in DAX 30

32

In terms of nationalities of investors, and once again only focusing on the largest

shareholders, 14 stem from Germany and 11 from the US. Moreover, it has to be noted

that BlackRock is the largest shareholder in 8 of the 30 companies.

3.2 France

In France, in the CAC 40, (Figure 6) the shareholder with the most concentrated ownership

(maximum value) holds 53.27%, while the largest shareholder with the minimum value

holds 4.97%. Thus, the other largest shareholders hold 16.36% on average. The maximum

value for the second shareholder is 23.16% and 13.66% for the third. On the other hand,

the minimum value for the second shareholder is 1.32%. The proportion decreases

substantially from the third shareholder to the tenth.

0

2

4

6

8

10

12

14

16

United States Germany Norway Kuwait Canada Belgium Qatar

Nu

mb

er o

f in

vest

ors

Countries

Figure 5 Location of largest investors in DAX 30

33

In terms of the median and mean of ownership in the CAC 40, Figure 7 shows the

average ownership for the first shareholders is 16.36%, with a median value of 11.31%.

The second holds 6.92% on average with a related median of 5.61%.

Figure 8 indicates that 30 of the 40 largest shareholders in CAC 40 hold an amount

of shares below 20%. Specifically, 15 of the 40 largest investors hold an amount of shares

between 0-10% while the next 15 of the 40 hold an amount between 10-20%. Of the less

-5

0

5

10

15

20

25

30

35

40

45

50

55


% o

f o

wn

ersh

ip

Shareholders

Figure 6 CAC 40 ownership data

Maximum Median Mean Minimum

0

2

4

6

8

10

12

14

16

18


% o

f o

wn

ersh

ip

Shareholders

Figure 7 CAC 40 median and mean data

Median Mean

34

widespread companies, 2 companies have the largest shareholder owning between 40%

and 50%, while only one shareholder owning shares in a range of 50-60% in the CAC 40.

In the French CAC 40, (Figure 9) institutional investors are the most common type

of largest shareholders, such is the case in 14 of the 40 companies. Also, in France, the

role of the government as the largest owner in CAC 40 firms is prominent. In fact, it is the

largest owner in 8 firms. Holding companies are the main shareholder in 9 firms, while

individuals and families hold that honour in 2.

0

2

4

6

8

10

12

14

16

0-10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% 70-80% 80-90% 90-100%

Freq

uen

cy


Figure 8 Frequency of ownership in CAC 40

0

2

4

6

8

10

12

14

16


Government Foundations Individualsand families

Holdingcompaniesand trusts

Banks Corporations

Nu

mb

er o

f in

vest

ors

Types of investors

Figure 9 Types of largest investors in CAC 40

35

Figure 10 illustrates how 22 of the 40 companies have their largest investor hailing

from France. In 10 firms the main investor is from the US. It is interesting to underline

that the American investment management corporation BlackRock is the major shareholder

in 8 companies and the French state plays this role in 6.

3.3 Italy

The Italian FTSE MIB, the index that comprises 40 Italian blue chip companies, seems to

be characterized by less widespread ownership. In fact, the maximum percentage of shares

held by the largest shareholders is 64.70% and a minimum value of 4.02%. This means

that not one of the largest shareholders holds less than 4.02%. The maximum value for

the second shareholders is 26.44% and the minimum is 1.92%. It is important to note that

from the third to the tenth shareholder the minimum value is negative, meaning that these

involve short selling practices.

0

5

10

15

20

25

United States France Belgium Canada Jersey Switzerland China

Nu

mb

er o

f in

vest

ors

Countries

Figure 10 Location of largest investors in CAC 40

36

In the FTSE MIB, as shown by Figure 12, the median and the mean values are very

close to each other. This means that there is an almost symmetric distribution, and the

mean is nearly in the middle, having similar amount of data on the right and on the left.

The largest shareholders of these 40 firms hold 29.49% of shares on average, with a

median value of 28.25%. The second shareholders hold a mean percentage of 6.77% of

ownership, with a median of 4.99%. From the third to the tenth, shareholders hold an

ownership percentage of below 3% on average.

-5

0

5

10

15

20

25

30

35

40

45

50

55

60

65


% o

f o

wn

ersh

ip

Shareholders

Figure 11 FTSE MIB ownership data


37

In the Italian FTSE MIB, (Figure 13) 10 of the 40 firms have the largest owner holding

shares between 0 and 10%. The most frequent range of ownership for the largest

shareholders is between 20-30%, in which the major shareholders of 12 firms fall. It has

to be noted that in many firms the largest shareholder holds a great amount of shares,

consequently leading to concentrated ownership. In fact, in 5 firms, the major shareholder

owns shares between 30-40%, in 3 firms between 40-50% and in 6 firms between 50-

60%. Furthermore, in 3 of the 40 firms, the largest owner holds shares in a range of 60-

70%.

0

5

10

15

20

25

30


% o

f o

wn

ersh

ip

Shareholders

Figure 12 FTSE MIB median and mean data

Median Mean

38

Regarding the types of investors, institutional investors are the major shareholder in

8 of the 40 companies. The government holds a similar number, which indicates its

important role. Holding companies and trusts are the largest owner in 9 companies in the

FTSE MIB and other corporation in 12 companies. These last two data indicate the

importance of the families as investors through mechanisms such as holding companies

instead of holding shares directly as private investors.

Figure 15 shows the supremacy of Italian largest shareholders in 27 of the 40

companies, followed by Luxembourg with 4 firms, where many holdings are domiciled for

fiscal reasons. More in detail, BlackRock is the first shareholder only in 2 firms, while Exor

0

2

4

6

8

10

12

14

0-10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% 70-80% 80-90% 90-100%

Freq

uen

cy


Figure 13 Frequency of ownership in FTSE MIB

0

2

4

6

8

10

12

14




trusts

Banks Corporations

Nu

mb

er o

f in

vest

ors

Types of investors

Figure 14 Types of largest investors in FTSE MIB

39

SpA is the first shareholder in 3 firms. Exor SpA is the holding company of the Agnelli

family.

3.4 Spain

In the Spanish IBEX 35, Figure 16 shows that the largest shareholder owning the maximum

level of shares has 70.10%, while the largest owning the minimum amount of shares

amounts to 4.94%. The maximum value for the second shareholder is 30% and the

minimum is 0.91%. From the third to the tenth, the maximum value decreases from

11.70% to 2.23%, while the minimum values are almost always negatives.

0

5

10

15

20

25

30

United States France Italy Germany Luxembourg Netherlands UnitedKingdom

Nu

mb

er o

f in

vest

ors

Countries

Figure 15 Location of largest investors in FTSE MIB

40

In terms of the median and mean (Figure 17), it can be seen that the largest

shareholders hold, on average, 25.51% of shares for a related median value of 20%. The

second holds a mean ownership of 7.13%. The average percentage of ownership decreases

to under 4% from the third shareholder to the tenth.

-5

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70


% o

f o

wn

ersh

ip

Shareholders

Figure 16 IBEX 35 ownership data


0

5

10

15

20

25

30


% o

f o

wn

ersh

ip

Shareholders

Figure 17 IBEX 35 median and mean data

Median Mean

41

Figure 18 shows that in terms of frequency, largest shareholders hold less than 10%

of total shares in 11 out of the 35 companies. 7 companies own a range of shares between

10-20%, 5 between 20-30% and 4 between 30-40%. However, 8 companies of the 35

display concentrated ownership with 5 firms having the major shareholder owning a range

of 50-60%, 2 between 60-70% and 1 over 70%. The latter refers to the case of the

previously seen maximum value of 70.10%.

With regards the largest shareholders, IBEX 35 has 9 largest shareholders of the 35

classified as institutional investors and 6 as the government. It is important to note the

role of corporations owning other companies, where in 7 of the 35 companies these are

the major shareholders. Banks are the main investor in 6 firms. The importance of families

is also clear as individuals and families are the major shareholders in 4 firms and holdings

in 2 firms.

0

2

4

6

8

10

12

0-10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% 70-80% 80-90% 90-100%

Freq

uen

cy


Figure 18 Frequency of ownership in IBEX 35

42

In terms of nationality of these investors, it seems to show a nationalistic

characteristic, with 22 of the 35 major investors from Spain, followed by the US in only 3

companies. The rest of the major shareholders in IBEX 35 are dispersed worldwide.

0

1

2

3

4

5

6

7

8

9

10




Banks Corporations

Nu

mb

er o

f in

vest

ors

Types of investors

Figure 19 Types of largest investors in IBEX 35

0

5

10

15

20

25

UnitedStates

Spain Italy Norway Canada Colombia Jersey Netherlands UnitedKingdom

Qatar

Nu

mb

er o

f in

vest

ors

Countries

Figure 20 Location of largest investors in IBEX 35

43

3.5 UK

The British FTSE 100 lists some of the world’s major publically-listed firms. Here, the

largest shareholder with the maximum ownership holds 74.99%, while the largest with the

minimum holds 4.87%. The second shareholder with the maximum amount of shares holds

23.51% while the minimum is 2.48%.

Figure 22 shows that the largest shareholder holds on average 13.87% and the

related median value is 9.51%. The second shareholder holds a mean percentage shares

of 6.88% and the third 4.69%. From the fourth to the tenth shareholder, the percentage

held is below 4%. The median value is different, as described, for the largest shareholder,

but from then on the mean and median values are close.

-5

5

15

25

35

45

55

65

75


% o

f o

wn

ersh

ip

Shareholders

Figure 21 FTSE 100 ownership data


44

In the FTSE 100 (Figure 23), 59 of 101 companies illustrate the largest shareholder

holding less than 10% of shares. In 24 firms, the major shareholder holds between 10-

20%, while the major shareholder has between 20-30% in 10 firms. Only a few companies

have a major shareholder owning more than 30%, but it has to be noted that 2 companies

have their largest shareholder owning between 70-80%. These are the cases of the mining

company Fresnillo plc, owned by the Mexican billionaire Alberto Baillères, and the Royal

Bank of Scotland, which was nationalised by the UK government in 2008.

0

2

4

6

8

10

12

14


% o

f o

wn

ersh

ip

Shareholders

Figure 22 FTSE 100 median and mean data

Median Mean

0

10

20

30

40

50

60

70

0-10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% 70-80% 80-90% 90-100%

Freq

uen

cy


Figure 23 Frequency of ownership in FTSE 100

45

Figure 24 reports that institutional investors are the most numerous type of first

shareholder in the FTSE 100, being the largest shareholder in 71 companies of 101.

Individuals are the main shareholder in 5 firms while holding companies and trusts play

that same role in 11.

In terms of investor nationalities 57 of the largest shareholders of 101 companies in

the FTSE 100 are American. In this sense, BlackRock is the first shareholder in 37

companies. Only 18 largest investors are from the UK. This is somewhat different to the

other countries analysed to this point, where there was much more “nationalism”. The rest

of the investors are distributed around the globe.

0

10

20

30

40

50

60

70

80




Banks Corporations

Nu

mb

er o

f in

vest

ors

Type of investors

Figure 24 Types of largest investors in FTSE 100

46

3.6 General analysis

Table 1 shows the average ownership for the ten major shareholders, classified according

to their index and nationalities. These data are graphically represented in Figure 26. From

those summaries, it is possible to detect and compare the main differences between the

countries. In fact, the mean ownership for the largest shareholders is almost similar for

the DAX 30 and the FTSE 100, where the values are 13.89% and 13.87% respectively.

Moreover, it is also close for the CAC 40, which has a value of 16.36%. On the other hand,

both FTSE MIB and IBEX 35 present a higher concentrated level of ownership with 29.49%

and 25.51% respectively. It seems that Germany, France and the UK present a similar

widely-dispersed ownership structure, while Italy and Spain have similar concentrated

ownership structures. Table 27 focuses solely on the average size of the largest

shareholders, so as to gain a clearer idea of the differences in the mean of ownership for

the most important shareholder.

The mean value of ownership for all the other shareholders from the second to the

tenth is almost similar. In fact, the second shareholder, on average holds 6.34% of the

shares in Germany, 6.92% in France, 6.77% in Italy, 7.13% in Spain and 6.88% in the

0

10

20

30

40

50

60

Nu

mb

er o

f in

vest

ors

Countries

Figure 25 Location of largest investors in FTSE 100

47

UK. From the third to the tenth shareholder, it is possible, thereafter, to note that Italian

shareholders hold a smaller average amount of shares than the other countries, while the

UK shareholders hold the greater average amount of shares in the group.

Table 1

Countries mean ownership comparison

Country Index Largest 2nd 3rd 4th 5th 6th 7th 8th 9th 10th

Germany DAX 30 13.89 6.34 3.95 2.68 1.97 1.93 1.40 1.34 1.16 0.98

France CAC 40 16.36 6.92 4.28 2.82 2.23 1.92 1.60 1.38 1.17 0.98

Italy FTSE MIB 29.49 6.77 2.87 2.31 1.75 1.50 1.11 0.85 0.76 0.64

Spain IBEX 35 25.51 7.13 3.71 2.82 2.17 1.72 1.28 1.12 1.03 0.88

UK FTSE 100 13.87 6.88 4.69 3.72 3.12 2.75 2.42 2.08 1.91 1.69

0

5

10

15

20

25

30


% o

f o

wn

ersh

ip

Shareholders

Figure 26 Countries mean ownership data

Germany (DAX 30) France CAC 40) Italy (FTSE MIB) Spain (IBEX 35) UK (FTSE 100)

48

Figure 28 shows, on one hand, the number of largest shareholders holding shares of

excess of than 25%. On the other hand, the percentage with respect to the total firms in

the index. Going more into detail, just 4 major shareholders in the DAX 30 hold more than

25%. This means that only 13.33% of the DAX 30 has a largest shareholder with more

than 25% of ownership. The same logic applies to the other countries. In the CAC 40, there

are 8 major shareholders, constituting 20% of the index, owning more than 25%. In Italy

and Spain, there are 24 and 13 largest shareholders respectively owning more than 25%.

This equates to 60% of firms having a major shareholder with more than 25% of ownership

in the FTSE MIB, and 37.14% in the IBEX 35. Conversely, the UK only has 14 largest

shareholders with more than 25%, which only represents 13.86% of the FTSE 100. This

analysis also allows for a confirmation of what was previously stated: there seems to be a

tendency of concentrated ownership in the Italian FTSE MIB and in the Spanish IBEX 35,

while in the other indexes the opposite seems to hold true, that of widespread ownership.

0

5

10

15

20

25

30

Germany (DAX 30) France (CAC 40) Italy (FTSE MIB) Spain (IBEX 35) UK (FTSE 100)

% o

f o

wn

ersh

ip

Countries

Figure 27 Average size largest shareholder


49

Differing from the previous figure, Figure 29 indicates the total amount of

shareholders, and not only the largest, holding more than 25%. The number of

shareholders who hold more than 25% increases by one in Italy and by 2 in Spain. This

means that, in the indexes of those countries, there are also these second shareholders

who own more than 25%. Not one of the second shareholders in the other countries own

this amount.

0%

10%

20%

30%

40%

50%

60%

70%

0

5

10

15

20

25

30


% o

f co

map

nie

s w

ith

larg

est

shar

eho

lder

s >2

5%

Larg

est

shar

eho

lder

s h

old

ing

>25

%

Countires

Figure 28 Largest shareholders owning more than 25%

n° first shareholders >25% % of companies with first shareholders >25% on the total index

50

In order to compare the differences between the groups, Figure 30 displays the

frequency of range of ownership in relative values. Clearly, the UK and Germany seem to

have more of a widely-dispersed situation. In fact, they present 58.42% and 56.67%

respectively of companies in their indexes having the major shareholder owning less than

10% of shares. France occupies more of a middle position, having 37.5% of the largest

shareholders owning less than 10% and 37.5% owning between 10-20%. On the other

hand, Italy and Spain seem to present a situation of concentrated ownership. In fact, 30%

of the firms in Italy have the largest shareholders owning between 20-30%, 12.5% owning

between 30-40%, 7.5% in a range between 40-50%, 15% between 50-60% and 7.5%

between 60-70%. There is a similar trend in Spain, where nearly 50% of companies

present the largest shareholders with more than 20% of shares.

0

5

10

15

20

25


Tota

l sh

areh

old

ers

>25

%

Countries

Figure 29 Total shareholders owning more than 25%


51

Once again, so as to more accurately compare different indexes with different number

of firms, the relative values should be compared which Figure 31 does. This shows the

percentage of firms in the total index who have a specific type of investor as their largest

shareholder. Institutional investors are clearly the most important class in Germany and

the UK. In fact, 43.33% of the companies in the German DAX 30 have an institutional

investor as the major shareholder. In the British FTSE 100, this percentage rises to 70.3%

of the firms. In the French CAC 40, institutional investors lead the way in 35% of the firms,

in 25.71% of firms in the Spanish IBEX 35 and in the Italian FTSE MIB, in only one firm

out of 5 (20%). The government as major shareholder is almost equally important in every

country. In Germany, France and Italy it is the largest shareholder in 20% of the

companies. In Spain, the figure decreases slightly to 17.14% and in the UK, this percentage

decreases sharply to 6.93%. Individuals and families are relevant in Germany and Spain,

where they are the largest investors in 16.67% and 11.43% respectively of the firms.

Thereafter, holding companies and trusts are particularly important in France and Italy,

where they are the main shareholder in 22.5% of the companies in both the CAC 40 and

0%

10%

20%

30%

40%

50%

60%

70%

0-10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% 70-80% 80-90% 90-100%

Freq

uen

cy in

%


Figure 30 Frequency of ownership comparison relative values


52

the FTSE MIB. Banks are relatively important investors in Spain, where they are main

investors in 17.14% of the companies in the IBEX 35. Finally, other corporations are the

main shareholders in Italy in 30% of the firms and in 20% of the companies in Spain. It is

important to underline that even if individuals and families do not directly hold ownership

of companies, they are usually behind holding companies, trusts or other corporations.

Thus, in the nations with a significant proportion of holding companies or corporations, the

role of individuals and families is probably as important as that of investors and

shareholders.

It is important to underline the prominent role of BlackRock as a shareholder. In fact,

this analysis has considered 5 indexes from 5 major economic countries meaning that a

total amount of 246 firms have been taken into account for this analysis. Of those,

BlackRock is the major shareholder in 57, which is equivalent to the 23.17%. Practically,

almost one quarter of the companies in these blue chip companies has BlackRock as a

largest investor.

0%

10%

20%

30%

40%

50%

60%

70%

80%




trusts

Banks Corporations

% o

f im

po

rtn

ace

on

th

e to

tal

Types of investors

Figure 31 Types of largest shareholders in relative values


53

3.7 Statistical analysis

A new method of detecting the convergence is introduced in this research. In fact,

compared to other pieces of research by other authors, it is the first time that statistical

tools are used to identify the existence or not of convergence in the ownership structure

and, thus, in the corporate governance system. The hypotheses are described below in

Table 2.

Table 2 Hypothesises

Null hypothesises Alternative hypothesises

H01: μ Germany = μ France H11: μ Germany ≠ μ France

H02: μ Germany = μ Italy H12: μ Germany ≠ μ Italy

H03: μ Germany = μ Spain H13: μ Germany ≠ μ Spain

H04: μ Germany = μ UK H14: μ Germany ≠ μ UK

H05: μ France = μ Italy H15: μ France ≠ μ Italy

H06: μ France = μ Spain H16: μ France ≠ μ Spain

H07: μ France = μ UK H17: μ France ≠ μ UK

H08: μ Italy = μ Spain H18: μ Italy ≠ μ Spain

H09: μ Italy = μ UK H19: μ Italy ≠ μ UK

H010: μ Spain = μ UK H110: μ Spain ≠ μ UK

As usual, the name of the country is only there to simplify understanding, because

in reality the specific index of the blue chips for every one of these countries was used and

tested. More precisely, the H01 (null hypothesis) is: the mean of ownership for the largest

shareholders in the German DAX 30 is equal to the mean of ownership for the largest

shareholders in the French CAC 40, and so on for the other hypotheses. Instead, H1

(alternative hypothesis) is the opposite of H0, thus the mean between two groups is

different.

A one-way ANOVA was used to see if the mean difference of share ownership between

the various indexes is ‘0’, which means they are equal, or not. The data was inserted on

SPSS and ownership was set up as a dependent variable and the countries as an

independent variable (factor). Table 3 shows the descriptive analysis of the ownership

54

across the countries. It describes the number of firms analysed for every country (which

is the number of firms included in the main index), the mean values, standard deviations,

maximum and minimum values and other data. Confirming what was stated in the previous

section, the German average seems to be similar to that of the UK, that is, of widespread

ownership. France occupies a mid-position, but closer to Germany and the UK. Then, Italy

and Spain with the higher mean values seem to be characterized by more concentrated

ownership. However, this is according to expectations. The statistical test was needed to

see if this expectation is statistically true or not.

Table 3 Descriptives

Ownership

N Mean Std. Deviation Std. Error

95% Confidence Interval for Mean

Minimum Maximum Lower Bound Upper Bound

Germany 30 13.8873 11.02512 2.01290 9.7705 18.0042 4.60 51.00

France 40 16.3610 12.59448 1.99136 12.3331 20.3889 4.97 53.27

Italy 40 29.4893 18.51090 2.92683 23.5692 35.4093 4.02 64.70

Spain 35 25.5080 20.22775 3.41911 18.5595 32.4565 4.94 70.10

UK 101 13.8723 13.23080 1.31651 11.2604 16.4842 4.87 74.99

Total 246 18.4736 16.16563 1.03068 16.4435 20.5037 4.02 74.99

The first step is the test of homogeneity of variances, which is reported in Table 4.

Ideally, it is better to have a non-significant result for this test (in other words, to obtain

Sig. value greater than 0.05), which means that the variances between these groups are

equal. Instead, in this case, the Sig. is lower than the alpha selected of 0.05. Thus, this

indicates that there is a difference in the variances across the countries, which could also

be expected due to the differences in the standard deviations in Table 3. This assumption

of ANOVA is not met, but it is possible to proceed with the analysis whilst considering the

ANOVA results carefully.

Table 4 Test of Homogeneity of Variances

Ownership

Levene Statistic df1 df2 Sig.

6.785 4 241 .000

55

Table 5 reports the results of the ANOVA test. The H0 is that the mean of ownership

of the largest shareholders is equal across the countries. The mean square indicates the

variability, and it is possible to see that the variance is definitely higher between groups

rather than within. The consequence of this is a high F-statistic which is related to a Sig.

of .000. Because of this, the null hypothesis is rejected with the conclusion that the average

ownership of the largest shareholders differs across the countries.

Table 5 ANOVA

Ownership

Sum of Squares df Mean Square F Sig.

Between Groups 9533.607 4 2383.402 10.541 .000

Within Groups 54491.649 241 226.106

Total 64025.255 245

At this point, the ANOVA test individuated a statistical difference in the ownership

between the groups, but it does not specify which of those groups differ. To see this detail,

a Scheffe post-hoc test (with alpha 0.05) was used. Table 6 reports the output with all the

possible combinations. This test allows for a detailed answer to the null hypothesises

described in Table 2.

From this, it is possible to reject H02, H03, H05, H09 and H010, because the Sig. value

of those is smaller or equal to the alpha of .05. This means that the related alternative

hypothesis H1 is true for those countries and, thus the mean of ownership for the largest

shareholders between Germany and Italy, Germany and Spain, France and Italy, Italy and

the UK, Spain and the UK are statistically different. On the other hand, it is not possible to

reject H01, H04, H06, H07, H08 because the Sig. values are greater than .05. This means

that may, therefore, be true the null hypothesises and the mean between Germany and

France, Germany and the UK, France and Spain, France and the UK, Italy and Spain are

not statistically different.

An interesting result is the similarity between France and Spain.

56

Table 6 Multiple Comparisons

Dependent Variable: Ownership

Scheffe

(I) Countries (J) Countries

Mean Difference

(I-J) Std. Error Sig.

95% Confidence Interval

Lower Bound Upper Bound

Germany France -2.47367 3.63174 .977 -13.7475 8.8002

Italy -15.60192* 3.63174 .001 -26.8758 -4.3281

Spain -11.62067* 3.74127 .050 -23.2345 -.0068

UK .01506 3.12659 1.000 -9.6907 9.7208

France Germany 2.47367 3.63174 .977 -8.8002 13.7475

Italy -13.12825* 3.36234 .005 -23.5658 -2.6907

Spain -9.14700 3.48035 .145 -19.9509 1.6569

UK 2.48872 2.80915 .940 -6.2316 11.2090

Italy Germany 15.60192* 3.63174 .001 4.3281 26.8758

France 13.12825* 3.36234 .005 2.6907 23.5658

Spain 3.98125 3.48035 .860 -6.8226 14.7851

UK 15.61697* 2.80915 .000 6.8966 24.3373

Spain Germany 11.62067* 3.74127 .050 .0068 23.2345

France 9.14700 3.48035 .145 -1.6569 19.9509

Italy -3.98125 3.48035 .860 -14.7851 6.8226

UK 11.63572* 2.94938 .004 2.4801 20.7914

UK Germany -.01506 3.12659 1.000 -9.7208 9.6907

France -2.48872 2.80915 .940 -11.2090 6.2316

Italy -15.61697* 2.80915 .000 -24.3373 -6.8966

Spain -11.63572* 2.94938 .004 -20.7914 -2.4801

*. The mean difference is significant at the 0.05 level.

Table 7 shows a general summary of the Scheffe results. It reports the mean values

of the groups split into different columns (subsets). These confirm the previous results of

Table 6, which indicate that the UK, Germany and France (under subset 1) do not

statistically differ, as well as France and Spain in subset 2. Italy and Spain, under subset

3, do not statistically differ from each other.

As mentioned before, the result regarding the similarity between France and Spain is

interesting. It puts France in a mid-position between the universe of indexes with

widespread ownership and indexes with concentrated ownership. Spain is in a similar

position, which is similar to Italy but it is also similar to France. It could be interpreted as

57

a tendency of convergence of France towards widespread models and a convergence of

Spain from the concentrated ownership model towards a middle system as that of France.

France is more similar to Germany and the UK, and Spain is more similar to Italy. However,

both tend to converge towards subset 1.

Running the Tukey HSD post-hoc test, the multiple comparison table presents the

same results. However, the summary table (Table 8) presents a slightly different output.

In fact, despite average ownership not being statistically different in France and Spain, it

presents just two subsets: the UK, Germany and France under subset 1, and Spain and

Italy under subset 2. This means that this test considers France and Spain differently, not

so much in a mid-position between the two extremes but being part of the two extreme

groups.

However, it has to be considered that running these statistical tests always carries

the probability alpha, which here was set to .05, to commit an error of type I, which is to

reject H0 when H0 is true and a probability β to commit an error of type II, which is not

rejecting H0 even if it is false.

Table 7 Ownership (Scheffe)

Scheffea,b

Countries N

Subset for alpha = 0.05

1 2 3

UK 101 13.8723

Germany 30 13.8873

France 40 16.3610 16.3610

Spain 35 25.5080 25.5080

Italy 40 29.4893

Sig. .967 .111 .837

Means for groups in homogeneous subsets are displayed.

a. Uses Harmonic Mean Sample Size = 41.049.

b. The group sizes are unequal. The harmonic mean of the

group sizes is used. Type I error levels are not guaranteed.

Table 8 Ownership (Tukey HSD)

Tukey HSDa,b

Countries N

Subset for alpha = 0.05

1 2

UK 101 13.8723

Germany 30 13.8873

France 40 16.3610

Spain 35 25.5080

Italy 40 29.4893

Sig. .944 .752

Means for groups in homogeneous subsets are

displayed.

a. Uses Harmonic Mean Sample Size = 41.049.

b. The group sizes are unequal. The harmonic mean

of the group sizes is used. Type I error levels are not

guaranteed.

58

4 Results and discussion

As described in the literature review, the theory reports the existence of specific models of

corporate governance which characterize the different countries. Going into more detail,

the shareholder model in the UK, where widespread ownership is common as a

consequence of a developed capital markets and a high-level of legal shareholder

protection (Becht and Mayer, 2001; La Porta et al., 1998). The stakeholder model in

Continental Europe, characterized mainly by concentrated ownership and a strong focus

and relationship between employees and employers, such as in Germany (Becht and

Mayer, 2001; Jacoby, 2000; Vitols, 2001). Clarke (2016) describes also the Latin system,

present in France, Italy and Spain, where firms have concentrated ownership due to weak

legal protection but, different to that of the stakeholder system, it is characterized by

conflictual relations between workers and employers.

In this research, the focus was on the ownership structure of the main stock indexes

in Germany, France, Italy, Spain and the UK. The aim was to analyse the ownership

structure of the blue chip companies in those indexes and see if there are similarities and,

thus, a possible convergence in corporate governance systems.

What is extremely interesting are the results obtained by the German DAX 30

analysis. German businesses are usually described as concentrated in ownership, with

infrequent formal board meetings but frequent informal meetings due to the tie in the

relationship between employees, managers and the main shareholder (Roe, 2000). Becht

and Böhmer (2001) describe how even the DAX 30 firms usually present a relevant major

shareholder, and, traditionally, the primary role as investors is held by banks and families.

Moreover, they find that Allianz AG and Deutsche Bank AG are the main shareholders in

many cases. The results of this research indicate that DAX 30 firms are mainly

characterized by widely dispersed ownership, and the role of main shareholders is held by

institutional investors. Moreover, Allianz and Deutsche Bank are never the main

shareholders in DAX 30 companies. Also, the DAX 30 and the FTSE 100 present almost the

same average of ownership for the largest shareholder, 13.89% and 13.87% respectively.

In fact, in the statistical analysis, both the Germany and the UK are not considered as

59

statistically different. This means that the German blue chip companies have probably

converged towards the Anglo-American system.

Another interesting result is the position of France. As mentioned, Bloch and Kremp

(2001) describe a high level of ownership concentration even in the CAC 40. In fact, they

describe how the largest shareholders hold between 20-30% of shares on average, the

second shareholders hold between 5-10% and the third around 5%. Also, they argue the

importance of holding companies, banks, insurance companies and families as major

investors. In this research, it was seen that in the CAC 40 the average figure of ownership

for the largest shareholders is 16.36%, for the second shareholders it is 6.92% and for the

third 4.28%. In the comparison of the average ownership observed by Bloch and Kremp

(2001) and in this research, it appears that the results for the second and the thirds

shareholders are similar, and instead it is the result for the largest shareholders that is

different. In fact, in this research it seems as if the average of ownership has decreased

from 2001 to now: from between 20-30% to 16.36%. In terms of investors, this research

has also uncovered the important role of holding companies and, thus, both directly and

indirectly of families. Banks are the main shareholder in only 2 firms out of 40. Therefore,

they are not so relevant. In terms of statistical results, it seems that the largest companies

in France are characterized by a trend in convergence towards the Anglo-American system.

However, it also appears that France still occupies a mid-position between concentrated

ownership and widespread ownership. In fact, from Scheffe post-hoc test, France is not

statistically different from the UK and Germany but the Scheffe summary Table 8 indicates

France between the widespread countries but also in a middle position. On the other hand,

Tukey summary Table 9 shows France completely part of the widespread group. This

ambiguous output probably indicates that France has not yet completed its convergence.

For Italy, the findings in this research are similar to those of previous researches. In

fact, Bianchi et al. (2001) state that the Italian system is characterized by high ownership

concentration with a particularly relevant role for families and the state as investors. In

this research, the average ownership for the major shareholders in the FTSE MIB

companies is 29.49%. This is the highest of all the indexes taken into consideration for this

60

analysis. In terms of investors, this research confirms the previous findings of Bianchi et

al. (2001). In fact, the important role of the government and individuals and families,

towards holding companies and other companies, has been confirmed. Statistically, the

FTSE MIB is different from all the other indexes, except the IBEX 35.

The analysis of the Spanish IBEX 35 also shows some relevant findings. Crespí and

García-Cestona (2001) indicate that concentrated ownership also characterizes the

Spanish system. However, similar to France, this research indicates that Spain is in a mid-

position between widespread ownership and concentrated ownership. The IBEX 35

presents an average ownership for the largest shareholders of 25.51%, and therefore,

seems to be closer to the 29.49% of the Italian system. However, from a statistical point

of view, the Scheffe test indicates that Spain is statistically different from the UK and

Germany, but that it is similar to Italy and France. Interestingly, the statistical similarity

with the French system shows a possible tendency towards widespread ownership, even if

it is currently not the case. Also, it has to be considered that statistical tests carry margin

of errors. In fact, the summary Table 8 from Scheffe shows Spain with Italy in the

concentrated ownership countries, but also in a middle group with France. However,

according to Tukey summary Table 9 Spain is only part of the concentrated ownership

group.

With regards to the UK, the characteristics identified in the literature review are fully

confirmed. In fact, the result of this research also indicates the UK as having a widespread

system with the prevalent role of institutional investors as main shareholders. Moreover,

it is possible to note that, as Goergen and Renneboog (2001) state, the UK is characterized

by the presence of many listed companies in the blue chip index. In fact, the FTSE 100

presents 101 companies listed, while all the other indexes taken into consideration present

between 30 and 40 companies listed in the blue chips index.

In conclusion, it is possible to recognise a general tendency of convergence towards

the Anglo-American system characterized by widespread ownership. This convergence

trend is clear for the German blue chips, as previously identified by Hansmann and

Kraakman (2000), Sudarsanam and Broadhurst (2012), Krenn (2014), Lane (2003) and

61

Branson (2001). It appears that France is also moving towards this trend. However, some

ambiguous results could indicate that the convergence process is not yet complete. On the

other hand, Italy seems to be stuck in its traditional model characterized by concentrated

ownership. Spain seems to be closer to the Italian concentrated ownership, even if some

results indicate that in Spain blue chips are tending to converge to some degree towards

the shareholder model.

In general, this trend in convergence could be explained by the increased importance

of the financial markets and the success of Anglo-American multinational companies, which

have been considered as the international benchmark (Krenn, 2014). Also, Agnblad et al.

(2001) and Lane (2003) argue that the increased importance of international institutional

investors as main shareholders has pushed towards this structural change. All these

findings correspond to the description offered by Branson (2001) that the largest

corporations will converge in corporate governance structure and practices.

62

Conclusion

In recent years the debate about corporate governance convergence towards the

shareholder model, which is characterized by widespread ownership, has arisen following

the phenomenon of globalisation, the increased importance of financial markets and the

international success of Anglo-American multinational firms. This research supports that a

convergence in corporate governance structure towards the shareholder model seems to

exist in almost all of the countries analysed.

In the discussion, it was concluded that the ownership structure of German blue chips

is extremely similar to that of the UK, meaning the German blue chips are widespread

owned. The French blue chips seem to be close to achieving their convergence, even if

some ambiguous results indicate that it has not yet been completed. Spain also seems to

be on the way to convergence, even if it is still similar to the Italian system, which is

characterized by a high concentrated ownership and no tendency of convergence.

This discussion was conducted focusing only on ownership, without considering

control. However, control is also an important component in the companies’ corporate

governance. In terms of data, the ownership changes both rapidly and frequently,

especially for listed firms. Thus, it is probable that some downloaded data could be a little

different at this present time. Furthermore, this research was carried out without taking

into consideration the analysis of the regulations and the change in regulations, which

could influence and explain the ownership structure. Another limitation is the fact that only

blue chip companies were taken into consideration. Thus, this research found that there

exists a tendency to converge towards a widespread ownership structure for the largest

firms but there is no mention of the ownership situation in smaller firms. Moreover, this

research was focused only on the main stock indexes of 5 countries: the German DAX 30,

the French CAC 40, the Italian FTSE MIB, the Spanish IBEX 35 and the British FTSE 100.

Then, the data sample could be wider if other important European stock indexes were also

included.

Further research could detect if a convergence trend is also happening in the

corporate governance of smaller firms. Moreover, it could be interesting to analyse the

63

structure of the ownership in firms in other countries, in order to see if there is a global

convergence.

In terms of implications, this research contributes to understanding the current

ownership situation of blue chip firms in some countries. This is important for policymakers

because they have to adapt their regulations to solve the specific agency problems

resulting from widespread or concentrated ownership.

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