Path dependence or convergence? The evolution of corporate ownership around the world

Abstract

We offer a model that sheds light on the debate over whether corporate ownership concentration converges to the Berle-Means image. Our model takes into account the importance of both legal rules and firm-specific arrangements. Our analytical result is that share ownership concentration either persists or falls depending on the relative importance of these protective arrangements. In particular, our model predicts: (a) diffuse corporate ownership in nations that impose legal limits on blockholders’ clout to expropriate minority shareholder rights, and (b) concentrated corporate ownership in nations that rely on asset specificity as a form of investor protection. Our empirical work suggests partial convergence toward Berle-Means diffuse share ownership. It is thereby reasonable to infer the existence of path dependent forces on ownership concentration. But this result does not preclude the possibility of functional convergence or convergence to the diffuse form of share ownership via cross-listings on the major U.S. stock exchanges that impose stringent disclosure and listing requirements. In essence, these results suggest a case for the co-existence of the preexisting path-dependency and functional-convergence stories.