| Abstract: | We analyze why the control of listed German and U.K. companiesis so different. As shareholders in Germany are less protectedand control is less expensive, German investors prefer controllingstakes. We also focus on economic factors such as profitability,risk, and growth to predict the probability of occurrence ofdifferent states of control six years after the flotation. LargeU.K. companies become widely held, whereas in large German firmsnew shareholders control significantly larger stakes. Wealthconstraints become binding for U.K. shareholders, whereas Germanshareholders can avoid this by using pyramids. We find substantialdifferences between a takeover by a concentrated shareholderand one by a widely held company. For the United Kingdom, theprobability of the former increases when the company is risky,small, and poorly performing. Conversely, the latter is morelikely when the target is large, fast growing, and profitable.Poor performance and high risk require control and monitoringby a concentrated shareholder. Conversely, high growth and profitabilityattract widely held companies. Founders are less inclined todilute their stake to retain private benefits of control. WhenGerman firms are profitable and risky, control is likely togo to a concentrated shareholder, but growth and low profitabilityincrease the probability of a control acquisition by a widelyheld firm. |
