Corporate Governance Structures, Control and Performance in European Markets: a Tale of Two Systems.

Traditionally share price returns and their variance have been explained by factors linked to the operations of the company such as systematic risk, corporate size and P/E ratios or by factors related to the influence of the macro-economic environment. In these models, the institutional environment in terms of concentration and nature of voting rights, bank debt dependence and corporate and legal mechanisms to change control have rarely been included. In this paper we have a dual objective. We first highlight the large discrepancies among corporate governance environments. We conclude that there is a need for a theoretically well-grounded measure of corporate control applicable to all systems and we define such a measure. Secondly, the impact of ownership structure on the share price performance and corporate risk is empirically analysed for companies listed on the London Stock Exchange. Within Europe, the UK corporate landscape is particularly interesting because of its widely held nature and the liquidity of the market for controlling rights.