Tag Archives | ownership

Shared Ownership Can Address Unequal Economy

How Shared Ownership Reforms Can Address Popular Anger about an Unequal Economy

In May 2017, U.S. Senators Sanders, Leahy, Gillibrand, and Hassan introduced legislation intended to help workers become owners. Their bill calls for a national employee ownership bank and helps states develop employee ownership centers. This comes after a dozen major cities and nearly as many states have acted to reduce barriers to shared ownership business models that offer an alternative to the investor-owned corporation. Promising approaches include employee stock ownership plans, worker-owned cooperatives, and community-owned renewable energy cooperatives. Continue Reading →

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Quicker Disclosure of Ownership Petitioned – Updated

NYSE Euronext, NIRI (National Investor Relations Institute) and the Society (Society of Corporate Secretaries & Governance Professionals) submitted a joint petition to the SEC requesting the SEC to reduce the time frame under which investors are required to report their holdings from 45 business days after the end of the quarter to two business days after the end of the quarter. Currently, the Exchange Act requires quarterly reporting, so a further reduction than quarterly reporting would require an act of Congress. Continue Reading →

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CalSTRS Furthers ShareOwner Revolution With Announcement of Disney Vote

CalSTRS announced its vote at the March 6, 2013, Walt Disney Company annual shareholder meeting. CalSTRS voted against several directors and management proposals, and voted for shareholder proposals to allow proxy access and separate the CEO and chairman positions. What is significant about the announcement is that it went over each director candidate and issue on the ballot and not only disclosed how CalSTRS voted but why. Here’s the thrust of their press release. Continue Reading →

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Recent Research on SSRN

Abstracts from a few papers posted this month to the Social Science Research Newtork.

Hall, Thomas W. and Jörgensen, Fredrik A., Ownership and Performance in Europe (2012). Forthcoming, Review of Business. The authors consider the relationship between performance and ownership concentration in a large number of publicly traded and privately held companies located in smaller European economies (Austria, Belgium, Finland, Ireland, and Ukraine). Continue Reading →

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Inside the Black Box

The Modern Firm, Corporate Governance and Investment (New Perspectives on the Modern Corporation), edited by Per-Olof Bjuggren and Dennis C. Mueller, explores developments in the theory of the firm, as well as how ownership structure and institutional frameworks impact performance. Below, I look at a small sample of the contributions contained in this stimulating reader.

As a demonstration of the book’s timeliness, the author of chapter 2, Oliver Williamson, was awarded the Nobel prize in economics while I was reading the book… always nice when that happens. In the essay included in this volume, Williamson argues that contract/governance is an instructive way of opening the black box of the firm, especially with regard to antitrust matters. He examines the application of a contractual approach to various forms, such as lateral integration, pricing, scaling, horizontal mergers, and conglomerates.

Dennis Mueller reviews the development of the firm, focusing on constraints (or their lack) on managerial discretion, finding constraints weak but developing. I a 1993 study with Elizabeth Reardon he found agency costs high. “Cumulative over the 19-year period, the 699 companies have collectively destroyed roughly $1 trillion by investing in projects with returns less than their costs of capital.” General Motors alone contributed $150 billion of the total. It would be interesting to see an update. The merger wave, growing competitive markets and the increased proportion of institutional investors increased constrains but the later weren’t as effective as some think, since institutional investors also got swept up in the euphoria of the bull market.

Kristen Foss examines managerial authority in the knowledge economy and finds changes are likely to be as dramatic as many suppose. “Although knowledge workers may have more bargaining power… they too will be subject to authority, as long as productive activities are characterized by uncertainty and measurement costs which make complete contracting prohibitively costly.”

Johan Eklund examines ownership concentration and dual-class equity structures in Scandinavia. He finds that dual-class shares drive a wedge between cash-flow rights and control rights. “Firms with only on equity class are, on average, investing efficiently, whereas firms with dual-class equity structure are over-investing… Vote-differentiation creates massive entrenchment and destroys large values.” “On average, ‘entrenched’ firms have returns on investments that are approximately 30 percent below the cost of capital.” “Separation of cash-flow rights from control appears to distort the incentive of the controlling owner by significantly reducing the incentive effect.”

Deakin and Singh look at the market for corporate control and conclude that takeovers are a very expensive way of changing management because of huge transaction costs. Lack of a market for corporate control in Japan, Germany and France avoids these costs but has not imposed hardship on their economies because of other mechanisms to discipline managers. Additionally, many acquiring firms do not impose discipline, since they are motivated by empire-building or asset-stripping.

Daniel Wiberg examines the relationship between institutional ownership and dividends. He finds that institutional ownership has a positive effect on dividend payout policies and disciplines free cash flow to management. Control instruments, such as vote-differentiated share, “induce investors to demand higher levels of dividends as compensation for increased agency costs.”

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Governance and Ownership

Governance and OwnershipGovernance and Ownership (Corporate Governance in the New Global Economy Series), Robert Watson, editor (Edward Elgar, 2005). This is an excellent collection of 20 papers, most published in the late 1990s, enhances our understanding of the relationships between ownership corporate ownership governance. Issues investigated include:

  • diversity of ownership forms and corporate control implications
  • effectiveness of such forms in influencing executives to enhance corporate value
  • role of owners in appointing and removing executives
  • influence of ownership structures on corporate restructuring, mergers and acquisitions
  • motivation of various classes of owners – their ability and willingness to influence corporate decisions

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