Faculty of Economics and Business Administration Publications Database

Diversification and ownership concentration

Parigi, Bruno M.
Volume: 32
Number: 9
Pages: 1743 - 1753
Month: September
ISSN-Print: 0378-4266
Link External Source: Online Version
Year: 2008
Keywords: Ownership concentration; Diversification opportunities; Investor protection

If controlling shareholders can divert profits, equity ownership is more concentrated the higher the stock returns correlation. A higher returns correlation reduces the benefits of diversification, giving rise to both a higher investment by the controlling shareholder in the asset that he controls and a lower investment by the non-controlling shareholders. The empirical analysis supports the predictions of the model: equity ownership is more concentrated in countries where the stock returns correlation is higher; moreover the intensity of the relationship between the stock returns correlation and ownership concentration is amplified by poor investor protection.