Ownership Dynamics with Large Shareholders : An Empirical Analysis

We study the empirical determinants of corporate ownership dynamics in a market where large shareholders are prevalent. We use a unique, hand-collected 20-year data-set on the ownership structure of Chilean companies. Controllers' block-holdings are on average high -as in continental Europe, for instance- and quite stable over time. Controllers still make nontrivial changes to their holdings through issuance and block trades. In a typical year controllers' block-holdings decrease (increase) by 5 percentage points or more in approximately 6% (7%) of firms. Few of these events are associated with changes in the identity of the controller although about half are correlated with changes in the size or composition of the board of directors. We find that the separation between controller's voting and cash-flow rights reduces the likelihood of ownership dilution. Dilution is preceded by high stock returns, and predicts low stock returns in the future (particularly when done through issuance). Dilution does not seem to be followed by higher investment, debt growth, changes in profitability, or turnover in control