Global Ownership and Corporate Control Networks
IMT Lucca EIC WP Series 07/2017
34 Pages Posted: 8 Sep 2017
Date Written: July 31, 2017
In this contribution, at first, we introduce a basic network framework to study pyramidal structures and wedges between ownership and control of companies. Then, we apply it to a dataset of 53.5 million of companies operating in 208 countries. Among others, we detect a strong concentration of corporate power, as less than 1% of parent companies collect more than 100 subsidiaries, but they are responsible for more than 50% of global sales. Therefore, we show that the role of indirect control, i.e., through middlemen subsidiaries, is relevant in 15% of domestic and 54% of foreign subsidiaries. Among foreign companies, cases emerge of blurring nationality, when control paths cross more than one national border, in the presence of multiple passports (19.1%), indirectly foreign (24.5%), and round-tripping subsidiaries (1.33%). Finally, we relate indirect control strategies to country indicators of the institutional environment. We find that pyramidal structures arise less likely in the presence of good financial and contractual institutions in the parent's country, as these foster more transparent forms of corporate governance. Instead, parent companies choose indirect control through countries of subsidiaries that have better financial institutions, possibly because it is easier to coordinate decisions from remote. Finally, we find that offshore financial centres are preferred jurisdictions for middlemen subsidiaries, probably due to a lower taxation and a lack of financial disclosure.
Keywords: ownership, corporate control, multinational enterprises, financial networks, financial institutions, offshore, economic entrenchment
JEL Classification: G32; G34; F23; F36; C63; C71; L14
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