The secret of the pyramids

Many firms are controlled by other firms, whose shares are themselves mainly held by other entities or individuals. Who uses such pyramidal structures? What for? Those were some of the questions addressed in a recent TILEC seminar. Douglas de Jong (University of Iowa) and co-authors managed to track the ownership structure of all firms listed on the French main market from 1997 to 2003. 56% of those companies are controlled by upstream firms, which is a larger proportion than thought. Preliminary work does not seem to support the hypothesis that pyramids are used so as to force minority shareholders to participate in the internal funding of business groups, while there is limited evidence that they are used to introduce a wedge between control rights and cash flow rights. Christoph van der Elst (Tilburg University) performs a comparison of the shareholding of operating companies listed in five European countries in 1999 and 2007.
Over the period, about a third of them were delisted. Contrary to a commonly held opinion, there is no general decrease in the control rights of the largest blockholders: that depends on the country and the concentration measure chosen.