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Ownership-Control Discrepancy and Firm Value: Evidence from France

Multinational Finance Journal, 2007, vol. 11, no. 3/4, pp. 211-252

Abstract:
The purpose of this study is to provide an empirical analysis of the relationship between ownership structure of French firms and their value. Using data for 510 French publicly traded firms, the current study provides evidence in support of the entrenchment hypothesis. The results show that large controlling shareholders maintaining grip on control while holding only small fraction of cash flow rights are inclined to expropriate minority shareholders, which in turn detrimentally affects the firm’s valuation. The evidence also indicates that pyramiding is the main device set to unduly entrench the large controlling shareholder. Additional analysis reveals that the identity of the second largest controlling shareholder matters. Sharing control with a family constrains the largest controlling shareholder to steer clear of self-serving behavior. However sharing control with a widely held firm or with a financial institution fosters this self-serving behavior.

Keywords : ownership structure; corporate governance; minority expropriation
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