Working Paper: NBER ID: w10628
Authors: Julian Franks; Colin Mayer; Stefano Rossi
Abstract: Family ownership was rapidly diluted in the twentieth century in Britain. The main cause was equity issued in the process of making acquisitions. In the first half of the century, it occurred in the absence of minority investor protection and relied on directors of target firms protecting the interests of shareholders. Families were able to retain control by occupying a disproportionate number of seats on the boards of firms. However, in the absence of large stakes, the rise of hostile takeovers and institutional shareholders made it increasingly difficult for families to maintain control without challenge. Potential targets attempted to protect themselves through dual class shares and strategic share blocks but these were dismantled in response to opposition by institutional shareholders and the London Stock Exchange. The result was a regulated market in corporate control and a capital market that looked very different from its European counterparts. Thus, while acquisitions facilitated the growth of family controlled firms in the first half of the century, they also diluted their ownership and ultimately their control in the second half.
Keywords: family ownership; corporate governance; institutional investors; UK corporate control
JEL Codes: G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| equity issuance (G24) | dilution of family ownership (G32) |
| acquisitions (G34) | dilution of family ownership (G32) |
| hostile takeovers (G34) | undermining family control (J12) |
| institutional investors (G23) | undermining family control (J12) |
| regulatory changes (G18) | dynamics of ownership and control (G34) |