Strong Managers and Passive Institutional Investors in the UK: Stylized Facts

The first striking feature is that ownership of the average UK company is diffuse: a coalition of at least eight shareholders is required to reach an absolute majority of voting rights. Even though the average firm has a dispersed ownership, the reader should bear in mind that there are about ten per cent of firms where the founder or his heirs are holding more than 30 per cent. The ownership structure is also shaped by regulation; the mandatory takeover threshold of 30%, for example, has an important impact on the ownership structure. In about 4% of sample companies, corporate shareholders hold just under 30 per cent of the shares. Second, institutional investors are the most important category of shareholders. However, they tend to follow passive strategies and often do not exercise the votes attached to their shares. Third, the passive stance adopted by institutions increases the already significant power of directors, who are the second most important category of shareholders. Franks, Mayer and Renneboog (1998) show that when directors own substantial shareholdings, they use their voting power to entrench their positions and they can impede monitoring actions taken by other shareholders to restructure the board, even in the wake of poor corporate performance. Fourth, there is an important market for share stakes and share stakes do not tend to be dispersed. Fifth, some of the characteristics of the British system of corporate governance, such as the proxy voting and the one-tier board structure, further strengthen the discretionary power of directors. Therefore, the main agency conflict emerging from the diffuse ownership structure is the potential expropriation of shareholders by the management.Corporate governance;capital and ownership structure

Corporate Governance Convergence: Evidence from Takeover Regulation Reforms in Europe

This paper contributes to the research on corporate governance by predicting the effects of European takeover regulation.In particular, we investigate whether the recent reforms of takeover regulation in Europe are leading to a harmonization of the national legislations.With the help of 150 corporate governance lawyers from 30 European countries, we collected the main changes in takeover regulation.We assess whether a process of convergence towards the Anglo-(American) corporate governance system has been started and we find that this is the case.We make predictions as to the consequences of the reforms for the ownership and control.However, we find that, while in some countries the adoption of a unified takeover code may result in dispersed ownership, in others it may further consolidate the blockholder-based system.takeover regulation;mergers and acquisitions;corporate governance;ownership and control;governance regulation;convergence

Shareholder Lockup Agreements in the European New Markets

We analyse the characteristics of lockup agreements of IPOs on the Neuer Markt and the Nouveau Marche from 1996 to 2000.Even though both markets were part of the same EuroNM network, the characteristics of their lockup agreements are substantially different.Firm characteristics have a major influence on lockup contracts.In addition, shareholder characteristics explain the diversity of contracts within the same firm.Although the French regulator offers two types of minimum lockup contracts, the market perceives a difference between the two contracts as the choice is influenced by the type of the firm and the type of shareholders.Initial public offerings;IPO;lockup agreements;lockup agreements;underpricing;Neuer Markt;Nouveau Marché;EuroNM;asymmetric information

Why are the French so Different from the Germans? Underpricing of IPOs on the Euro New Markets

IPOs on the EuroNMs have shown very high underpricing.The majority of these IPOs possess specific characteristics such as lock-up agreements, venture-capital financing, ownership by the underwriter and over-allotment options.We study how these characteristics influence the underpricing of firms listed on the two largest EuroNM stock exchanges, the Neuer Markt of Germany and the Nouveau Marche of France.We find that the high underpricing in these two markets contrary to the evidence on the US - is not driven by insiders selling behaviour.However, the large underpricing is caused by the high degree of riskiness of the issuing firms and by the partial adjustment phenomenon of offer prices to compensate institutional investors for the truthful revelation of their demand for the shares.In contrast, venture-capital involvement does not affect underpricing.For France, lock-up agreements act as substitutes to underpricing, but not so for Germany.We also explore the reasons for the large difference in underpricing between the German and the French IPOs: German firms are more underpriced because they are more risky, have larger price revisions, have less stringent VC lock-up contracts and mostly go public during the hot issue period of 1999-2000 when the general level of underpricing in all IPO markets is substantially higher.IPOs;underpricing;venture capital;high technology;European new markets;lock-up agreements

Follow-up Reproductive Health Needs Assessment for Evaluation of a CBD Program in Maramba Division,Muheza District

This is the report of a follow up household survey conducted in 8 villages of Maramba Division, Muheza District 1.5 years after starting a CBD program. The main findings are; The contraceptive prevalence for modern methods was 33% compared to 24% in 1999. Among clients of oral contraceptives compliance to pill use can be estimated to be about 77%. Delivery indicators show that the rate of professionally assisted deliveries decreased from 55% in 1999 to only 33% in 2001. Knowledge on how to prevent STDs has improved. More women mention the use of condoms 16%(against 10% in 99) and having only one sexual partner 43% (against 27% in 99). It is concluded that CBD activities have a measurable impact on the contraceptive prevalence rate. If established at large scale the contraceptive prevalence of a whole region or even the whole country could increase considerably... Delivery indicators showed that the rate of home deliveries is increasing. Especially alarming is the increase in birth only attended by untrained people. There is an urgent need to further explore the reason and to react with appropriate measures. This rapid assessment methodology is very useful to provide at low cost population based data. This is especially important as long as reliable population data are missing. In selected area this type of survey should accompany a CBD program on regular basis

Contractual Corporate Governance

Companies have the choice to deviate from their national corporate governance standards by opting into another system. They can do so via contractual devices – such as cross-border mergers and acquisitions, (re)incorporations, and cross-listings – which enable firms to choose their preferred level of investor protection and regulation. This paper reviews these three main contractual governance devices, their effect on value, and whether their adoption by firms induces a race to the bottom or a race to the top. Indeed, firms may opt for less shareholder-orientation or investor protection (shareholder-expropriation hypothesis) rather than for more stringent rules that require firms to focus on shareholder value (bonding hypothesis).Contractual corporate governance;corporate governance regulation;cross-border mergers and acquisitions;cross-listings;reincorporations;shareholder protection;creditor protection;spillover effects

Investment Policy, Internal Financing and ownership Concentration in the UK

This paper investigates whether investment spending of firms is sensitive to the availability of internal funds.Imperfect capital markets create a hierarchy for the different sources of funds such that investment and financial decisions are not independent.The relation between corporate investment and free cash flow is investigated using the Bond and Meghir (1994a) Euler-equation model for a panel of 240 companies listed on the London Stock Exchange over a 6 year period. This method allows for a direct test of the first-order condition of an intertemporal maximisation problem.It does not require the use of Tobin s q, which is subject to mis-measurement problems.Apart from past investment levels and generated cash flow, the model also includes a leverage factor which captures potential bankruptcy costs and the tax advantages of debt.More importantly, we investigate whether ownership concentration by class of shareholder creates or mitigates liquidity constraints.Control is expected to influence the investment financing relation for two reasons.First, due to asymmetric information, the link between liquidity and investment could be a symptom of underinvestment.Firms pass up some projects with positive net present values because of the inflated cost of external funds.Second, from an agency perspective, external funds may not be too expensive but internal funds (free cash flow) may be too inexpensive from the manager s perspective.Whereas high insider ownership concentration reduces the liquidity constraints induced by agency costs, high insider shareholding concentration increases the liquidity constraints in the case of asymmetric information.It is expected that the induced liquidity constraints due to insider ownership is substantially reduced when outside investors control a substantial share stake and have therefore an increased propensity to monitor management.When industrial companies control large shareholdings, there is evidence of increased overinvestment.This relation is strong when the relative voting power (measured by the Shapley values) of the combined equity stakes of families and industrial companies and the Herfindahl index of industrial ownership are high.This suggests that a small coalition of industrial companies is able to influence investment spending.In contrast, large institutional holdings reduce the positive link between investment spending and cash flow relation and hence suboptimal investing.Whereas there is no evidence of over- or underinvesting at low levels of insider shareholding, a high concentration of control in the hands of executive directors creates a positive investment-cash flow relation.corporate governance;investment;corporate ownership;corporate control;liquidity constraints