Diversified business groups, consisting of legally independent firms operating across diverse industries, are ubiquitous in emerging markets. Groups around the world share certain attributes but also vary substantially in structure, ownership, and other dimensions. This paper proposes a business group taxonomy, which is used to formulate hypotheses and present evidence about the reasons for the formation, prevalence, and evolution of groups in different environments. In interpreting the evidence, the authors pay particular attention to two aspects neglected in much of the literature: the circumstances under which groups emerge and the historical evidence on some of the questions addressed by recent studies. They argue that business groups are responses to different economic conditions and that, from a welfare standpoint, they can sometimes be "paragons" and, at other times, "parasites." The authors conclude with an agenda for future research.

/pdf/business-groups-in-emerging-markets-paragons-or-parasites-4d4n8n1i70.pdf

Business Groups in Emerging Markets: Paragons or Parasites?

We study a contest with multiple (not necessarily equal) prizes. Contestants have private information about an ability parameter that affects their costs of bidding. The contestant with the highest bid wins the first prize, the contestant with the second-highest bid wins the second prize, and so on until all the prizes are allocated. All contestants incur their respective costs of bidding. The contest's designer maximizes the expected sum of bids. Our main results are: 1) We display bidding equlibria for any number of contestants having linear, convex or concave cost functions, and for any distribution of abilities. 2) If the cost functions are linear or concave, then, no matter what the distribution of abilities is, it is optimal for the designer to allocate the entire prize sum to a single ''first'' prize. 3) We give a necessary and sufficient conditions ensuring that several prizes are optimal if contestants have a convex cost function.

The Optimal Allocation of Prizes in Contests

Using new data for the universe of firms covered in Amadeus, we reconstruct the portfolios of shareholders who hold equity stakes in private and publicly-traded European firms. We find great heterogeneity in the degree of portfolio diversification across large shareholders. Exploiting this heterogeneity, we document that firms controlled by diversified large shareholders undertake riskier investments than firms controlled by non-diversified large shareholders. The impact of large shareholder diversification on corporate risk-taking is both economically and statistically significant. Our results have important implications at the policy level because they identify one channel through which policy changes aimed at improving capital market development can improve economic welfare.

/pdf/large-shareholder-diversification-and-corporate-risk-taking-db9ux2p21g.pdf

Large Shareholder Diversification and Corporate Risk-Taking

This essay first describes the differences in the ownership structure of companies in the three main economies of continental Europe - Germany, France, and Italy - with comparisons to the United States and the United Kingdom. Next, it summarizes the corporate governance issues that arise in firms with a dominant shareholder. Then, it provides a brief account of the major European corporate scandal, Parmalat, as an extreme example of investor expropriation in a family-controlled corporation. After outlining in general the legal tools that can be used to tackle abuses by controlling shareholders (internal governance mechanisms, shareholder empowerment, disclosure, public enforcement), it describes the corporate governance reforms enacted by France, Germany, and Italy between 1991 and 2005 and assesses the way in which investor protection in the three countries has changed.

Corporate Governance Reforms in Continental Europe

We compare the dividend policies of publicly- and privately-held firms in order to help identify the forces shaping corporate dividends, and shed light on the behavior of privately-held companies. We show that private firms smooth dividends significantly less than their public counterparts, suggesting that the scrutiny of public capital markets plays a central role in the propensity of firms to smooth dividends over time. Public firms pay relatively higher dividends that tend to be more sensitive to changes in investment opportunities than otherwise similar private firms. Ultimately, ownership structure and incentives play key roles in shaping dividend policies.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1906727_code294874.pdf?abstractid=927802&mirid=1&type=2

Corporate Dividend Policies: Lessons from Private Firms

L'etude porte sur les determinants de la prise de risques en entreprise. Les actionnaires qui ont des interets considerables dans une seule firme ont tendance a preconiser la prudence en matiere de politiques d'investissement parce qu'ils sont davantage exposes aux risques.

/pdf/corporate-risk-taking-and-ownership-structure-3ylorxke8r.pdf

Corporate risk taking and ownership structure

https://www.frbsf.org/economic-research/events/2013/january/federal-reserve-day-ahead-financial-markets-institutions/files/Session_3_Paper_2_Paligorova_Santos_risk_taking.pdf

Monetary Policy and Bank Risk-Taking: Evidence from the Corporate Loan Market

Our study of banks' corporate loan pricing policies in the United States over the past two decades shows that the loan spreads between riskier and safer borrowers decrease in periods of easy compared to periods of tight monetary policy. This interest rate discount is robust to borrower-, loan-, and bank-specific factors, macroeconomic factors and various types of unobserved heterogeneity at the bank and firm levels. Using individual bank information about lending standards from the Senior Loan Officers Opinion Survey (SLOOS), we unveil evidence that the interest rate discount for riskier borrowers in periods of easy monetary policy is prevalent among banks with greater risk appetite. This finding constitutes solid evidence in support of the bank risk-taking channel of monetary policy.

https://www.bankofcanada.ca/wp-content/uploads/2010/02/wp09-12.pdf

Complex Ownership and Capital Structure

This paper explores pyramidal firms and their motivations for the use of debt financing. We find that pyramids have significantly higher leverage than non-pyramids and that the use of debt in pyramids is associated with the risk of expropriation. We do not find evidence for the control-enhancing, disciplining, tax-reduction, and risk-sharing explanations for the use of debt financing. Our results indicate that the capital structure of pyramids is affected by the expropriation activities of ultimate owners that have excess control rights.

/pdf/complex-ownership-and-capital-structure-459lqw0fmw.pdf

Teodora Paligorova

Papers

Corporate risk taking and ownership structure

Monetary Policy and Bank Risk-Taking: Evidence from the Corporate Loan Market

Monetary Policy and Bank Risk-Taking: Evidence from the Corporate Loan Market

Complex Ownership and Capital Structure

Complex Ownership and Capital Structure