Who owns Who? An investigation into the cross-country ownership
structure of companies listed on seven stock-market indices
Bachelor Thesis
Leon van Veldhuijzen
Student number: 10817263 Faculteit der Maatschappij- en Gedragswetenschappen
Bachelor of Political Science Bachelor Project: Continuity and Change in Global Capitalism Supervisor: Dr. J. Fichtner (UvA) Second Reader: Dr. P. Schleifer (UvA) Date of Submission: 25 - 06 - 2018 Word count (excluding cover, figures and references): 7947
Introduction
The transnational corporation (TNC) has taken a central role in contemporary global capitalism. TNC’s are influential actors on every political level and they account for more and more of the total amount of global economic activity (Starrs 2013). As almost all large TNC’s are publicly listed, investigating how their underlying ownership is structured is essential for understanding them. And even though the body of empirical literature is substantive, little has been done to map the ownership of some of the worlds most traded stock-market indices, which contain some of the largest TNC’s. By looking at multiple national indices, the cross-country ownership structure can be explored. The goal of this paper is therefore to contribute to the academic discussion about TNC’s and corporate
ownership by showing descriptive statistics based on ownership data of companies listed some of the world’s most traded stock-market indices. These companies are listed on the dominant indices of; the United-States, Great-Britain, the Netherlands, France, Germany, Japan and finally the whole
Eurozone. Sections will be devoted towards analyzing; the nationality of the shareholders, the largest investors per index, and the level of ownership concentration. There are also novel findings on the Big Three of passive investment: Blackrock, Vanguard and State Street. The value of this contribution lies in the novelty of the combination of looking at stock-market indices and using the Orbis company database, as this has not been done before (to the authors knowledge). By focusing on the indices of different developed economies, the cross-country ownership of some of the world's largest
corporations can be mapped. Departing from previous literature and research on the subject, these new empirical findings will be compared with previous research from multiple academic fields. The main research question is: How is the cross-border ownership of publicly held companies listed on
major stock-market indices structured?
The rest of this paper is structured as follows: Section one, Theoretical Framework, will cover theoretical discussions on corporate ownership and formulate hypotheses based on previous research. The second section, Data and Methods, will elaborate on the data and methods used in the empirical analysis. In the third section, Results and Analysis, the results will be presented. In the final section, Conclusion and Discussion, there will be a brief summary of the main findings of this paper and a discussion on the implications of these findings for the broader field of research on corporate ownership.
Theoretical Framework
In order to conduct a sensible interpretation of the empirical findings it is first necessary to construct a theoretical framework. Corporate ownership is a subject that crosses multiple academic fields. It has been studied extensively from the perspective of Economics, Finance and Business studies, but also from the perspective of International Political Economy (IPE). This section will therefore examine some of the relevant literature from these different fields, and also review some previous empirical
research. These findings will be used to formulate some hypothesis that will be tested in the analysis section.
First a note on the definition of corporate (cross-border) ownership structures. The structure of ownership within companies can be seen as the different ways in which a publicly held company can be owned by the shareholders. There can be few shareholders with large blocks of stock or even a majority shareholder. In both these cases, ownership is concentrated. The opposite situation would be a company that is owned by many investors that hold lower percentages of stock. Ownership would in this case be dispersed. Next to this dimension of concentration, it is also important to look at who these shareholders are. Domestic shareholders might behave differently than investors domiciled abroad. And investors just seeking return on investment might behave different than those trying to influence corporate management. Cross-border ownership, as used in the main research question, lays the focus on the international nature of corporate ownership by looking at the nationality of the shareholders. The following subsections will briefly review corporate ownership from two
perspectives; corporate governance and IPE, after which previous empirical papers will be reviewed.
Corporate governance and corporate ownership
One of the reasons for studying corporate ownership is that different structures, can lead to different forms of corporate governance. Most studies on corporate governance take the company and its owners as the main focus of analysis. Corporate governance can broadly be defined as “the system of laws, rules and factors that control operations at a company” (Gillan and Starks 1998). It can also be defined from the perspective of the financial interests of the investors as “the ways in which suppliers of finance to corporations assure themselves of getting return on their investments” (Shleifer and Vishny 1997). There are many different factors which can influence the way a company is run. On a macro-level, national or international political bodies can create new or adjust existing laws that are directly linked to the way corporations can behave. On a micro-level, the dynamic between
shareholders and company management has substantive implications for corporate governance. One of the aspects of this dynamic is known as the principal agent problem. The principal agent problem in the context of corporate governance of listed companies arises from the potential difference in the interests of the owners (principal) and of management (agent). In principal agent theory, the agent has to perform a service to the principal. When both parties try to maximize utility the agent will not always act in the interest of the agent (Jensen & Meckling 1976: 308). Different owners, and different ownership structures (e.g. diffused or concentrated), can lead to different variants of this problem. A well-known theory regarding this problem is that of Berle and Means (1933). They stated that the diffuse nature of ownership of listed US companies leads to the
“separation of ownership and control” (ibid). When a large publicly listed company is owned by a lot of smaller shareholders, it leaves these shareholders relatively powerless to keep management under control. In theory, smaller shareholders could still try to influence management. However, in this
fragmented structure of corporate ownership, a collective action problem arises due to the lack of incentive for an individual owner to monitor management. Since the individual would carry all the costs but all the shareholders would benefit from his actions (Gillan and Starks 2003: 6).
However, when a shareholder decides, individually or in collaboration, to try to influence corporate governance, they can generally to this in three ways: (1) The shareholders can sell their shares, also called ‘voting with their feet’, (2) they also hold their shares and make their current dissatisfactions known, or (3) they can hold their shares and withhold from any action (Gillan and Starks 2003). Hirschman famously coined these options respectively as: “exit, voice, or loyalty” (1971). As an investor, the potential exiting of a company can influence management's behavior because there can be multiple negative effects for the company; the stock value can drop, other investors can leave, potentially shifting the composition of the shareholder base, towards more short sighted focus, and then a possible clash with management could occur (Parrino, Sias and Starks 2003). As these potential behaviors of shareholders can have a large impact on corporate governance, having empirical knowledge on these shareholders is highly relevant.
International political economy and corporate ownership
TNC’s should not only be studied to maximize return on investment, or to find the optimal solution to the principal agent problem. In addition to literature that is more finance/business focussed there is also literature about corporate ownership from the perspective of IPE. IPE is the academic field that combines subjects from political science and economics (Miller 2008). It can also be seen as “the interplay of economics and politics in the world arena.” (Frieden and Lake 2000: 1). It is important to study TNC’s, financial markets and market instruments from the perspective of IPE, as these are undoubtedly interwoven with the functioning of global capitalism (Braun 2015). Doing research on developments in the financial markets could reveal how these developments lead to a shift in political and economic power on the national and global level. Thus, understanding corporate ownership is important because TNC’s are not just economic entities, they are also political actors. For this reason, two themes in IPE research will now be reviewed; First, globalization and the integration of
international financial markets, and second, the hegemony of the United States.
The current ownership structures of TNC’s has such an international nature in part because of globalization and the integration of international financial markets. In the beginning of the 1990’s it already was clear that the status of the international economy had changed significantly and
permanently. One of the most fundamental changes was that of the growth of capital mobility across national borders (Frieden 1991). The developments in information technology made the these international capital flows feasible (ibid), and it also made management of emerging TNC’s possible (Schwartz 2010: 219-235). Gilpin even stated that “In the mid-1980s a revolution in international economic affairs occurred” (2001: 4), pointing towards the large effect that TNC’s and foreign direct investments have on all facets of the international economy. It were the financial deregulations of the
mid-170’s that led towards a boom in investment capital, which grew than ten times between 1980 and 1990 (idem: 6). However, these capital flows also resulted in an increased instability of the international economy (idem: 261). Some IPE authors argue that these trends of globalization were the result of the US using its dominance to create “a cluster of policies we call globalization: liberalization of international trade and capital flows, and the liberalization and marketization of domestic finance and the public sector elsewhere” (Schwartz 2010: 302). This leads to the debate regarding US dominance.
The continuity or decline of US (economic) hegemony remains a matter of discussion in the field of IPE. There have been claims about the decline of the post-WWII era of American dominance since the 1980’s and onward (Keohane 1984, Calleo 1987, Wallerstein 2003 and Arrighi 2007). Other authors have nuanced the presumed decline of American hegemony. Starrs argued that when studying American economic power, there should be more focus on the TNC instead of economic metrics such as global share of GDP (2013). The global share of United States GDP has been declining since the 1960’s, meanwhile the operations of the American TNC’s have globalized and their economic activity has grown significantly. TNC’s are accountable for most of the global economic activity. Starrs empirical analysis showed that corporate ownership has globalized since the 1990’s and that this globalization is dominated by American investors. The assumed runner up, China, does not come close in terms of dominance of TNC’s (idem: 825-829). Recent work by Fichtner also showed that when focussing on the different domains of global finance, the US, also stretching the importance of taking the other Anglo-American countries into account, continue to uphold dominant structural power (2017). The empirical analysis of this paper will try to contribute to the discussion about the dominance of the US in global finance, also by comparing US investors to Chinese investors. First, some existing empirical research on corporate ownership will be reviewed.
Past research on corporate ownership
This subsection will discuss six empirical research papers on the subject of corporate ownership. The papers are reviewed with the purpose of justifying the methods and data used in this research, to get a notion on the academic context in which this research is conducted, and finally to formulate
expectations, hypothesis and possible implications.
Before reviewing the more recent empirical studies, it is important to briefly mention one of the more well-known works on corporate ownership, which was already mentioned before: The Modern Corporation and Private Property, by Berle and Means (1933). This book is older than most
of the other research. It is however widely cited and quoted. The main thesis is that ownership and control are separated in publicly held firms. Later studies, as discussed below, often still compare their findings to the ones of this academic work.
Another widely cited paper is Corporate ownership around the world by la Porta et al (1999). Porta and colleagues carried out an empirical analysis using international data to see if Berle and
Means theory held up in practice. The threshold used for dispersed ownership was when companies had no controlling shareholder (position larger than 50%). The paper showed that the corporate ownership structures and the presence of ultimate owners varies a lot per country and region. The number of widely held companies in a country correlated with the level of shareholder protection. Therefore, in countries that do not provide these protections, more concentrated ownership and more ultimate owners are present. In addition of direct investments, the paper focused on indirect
investments. An indirect investment is when an investor holds stakes in a company via custodians. According to Porta et al. the thesis of Berle and Means is valid in large firms in the richest common law countries, of which the US of course is one.
A second paper that nuances the separation of ownership and control is: The Myth of Diffuse
Ownership in the United States. Holderness argues based on a representative sample of US publicly
held firms, that 96% have block holders (2009). Holderness uses 5% as a threshold for a shareholder block (note: this paper uses the term shareholder block for all different sizes). The empirical analysis was conducted on 375 exchange listed firms that resulted from a sample of all exchange listed firms. Compiled, these block holders hold on average 39% of the shares in the target company. As a result of these findings, Holderness points out that the separation of ownership and control of Berle and Means might not be as prevalent. Owners might not be as distant and diffused as was always thought (idem: 1405). Holderness also points out that these findings could have implications for the theory that countries with weaker shareholder protections have more concentrated ownership, as in the research discussed earlier conducted by la Porta et al. The validity of this theory is weakened when the US, a country with very strong investor protection laws, has relatively concentrated as opposed to diffused ownership (ibid). It is however important to note that concentrated ownership does not necessarily mean that the block holders will actually try to influence management. As Holderness points out “A block holder who appears publicly to be passive may, in reality, be active behind the scenes. Conversely, a block holder who sits on the board may be ‘asleep at the switch’” (idem: 1397). The financial data that was used for this research was of the year 1994 (idem:1380-1381).
The already mentioned paper by Starrs called: American Economic Power Hasn’t Decline, It
Globalized! Summoning the Data and Taking Globalization Seriously, focuses on the maintenance of
American global hegemony from the perspective of the TNC. Starrs argues that when studying the global power of the US researchers must not focus on statistics such as global share of GDP.
Focussing on these national accounts of economic metrics will give the wrong idea about US power. Global relative GDP of the US economy has been declining steadily. TNC’s account for the largest share of global economic activity, and the focus should lay on how the US based companies continue to dominate the international financial markets. He then shows via his empirical analysis that
corporate ownership has globalized since the 1990’s and that this globalization is dominated by these American companies and investors.
There is also research that focuses specifically on companies of EU countries. The paper:
Cross‐border corporate ownership and capital market integration in Europe: evidence from portfolio and industrial holdings by Wojcik, looks at corporate ownership in the period of European financial
integration (2002). Wojcik tried to answer to what extent the integration of the European markets have led to an increase in cross-border (European) corporate ownership. Wojcik concluded back in 2002 that the integration of pan-European financial markets was not substantial, that ownership structures differs a lot per country and that the financial institutions of the US, who are of course outsiders in terms of nationality, controlled the majority of foreign holdings (2002: 484-485). So he speaks of “Americanisation of European capital markets rather than European capital market integration” (idem: 486). These findings were against common portfolio diversification theories, which would suggest that the portfolios of the European companies and institutions would be diversified more evenly. This resulted in Wojcik’s claime that instead of diversification, investors search for control over the target companies (ibid). It will be very interesting to see to what extent the ownership structures of European countries (limited in this research to the indices of Great-Britain, the Netherlands, France and Germany, and in addition the Eurozone) have changed since 2002.
While the papers above mainly focus on the degree of ownership concentration and the predominance of US shareholders internationally, there is also literature that focusses on rising popularity of passive investment and the accompanying rise of the Big Three. In a study conducted by Fichtner, Heemskerk & Garcia-Bernardo called: Hidden power of the Big Three? Passive index funds,
re-concentration of corporate ownership, and new financial risk (2017). The focus lay on the growth
and potential power of the three largest passive investment firms in the US: Blackrock, Vanguard and State Street. Since the crisis of 2008, investors have shifted towards index mutual funds and exchange traded funds (idem: 288-289). The difference between active and passive management is that in the former a portfolio is actively managed by looking for individual stocks with the goal of maximizing returns, while the latter tries to mirror stock indices passively and gain returns from the accompanied growth of the whole index. Costs are therefore lower for passive investment funds, as they do not need to pay for portfolio management. Fichtner et al. show by looking at both the breadth and the depth of the Big Three’s shareholder blocks how “unprecedented levels of concentrated corporate ownership” are present in the US (idem: 322-323). Breadth is the number of companies an investor has positions in and depth is the size of those ownerships. These terms will also be used in the
analysis of this paper. These large passive investors do however miss the option to exit the company if they want to influence corporate management. The paper by Fichtner and colleagues showed evidence that there signs that the Big three uses central voting strategies, even though they mostly vote in accordance with management (ibid). The empirical analysis will pay special attention to the Big Three by investigating both breadth and depth of their holdings in all the indices.
With a better understanding of the academic context, some hypotheses can now be formulated:
• Ownership is either dispersed (e.g. Berle and Means 1933, La Porta et al. 1999) or concentrated (e.g. Holderness 2009).
• US and other Anglo-American based shareholders hold relatively more shares compared to other foreign investors in a specific country (e.g. Starrs 2013, Fichtner 2017, Wojcik 2002) • The Big three are prominent in both breadth and depth in all indices (e.g. Fichtner,
Heemskerk & Garcia-Bernardo 2017)
These hypotheses can be tested with the empirical findings presented later. The next section will cover the data and methods used in the analysis.
Data and Research Methods
Before discussing the data and methods, some remarks have to be made on the chosen data sample. Because of limited time and scope, a selection of national indices had to be made. When creating a sample of national indices it is essential that they have reliable recent and available data. Next to the data quality and availability priority was given to countries that have been subject of previous research, as this will give the opportunity to test existing hypotheses. Countries central in previous research such as the Anglo-American countries (the United States and the United Kingdom) should therefore be part of the analysis. Also the some of the larger economies of the European mainland (Germany, France and the Netherlands) and Asia (Japan) should be included to compare these to the Anglo-American countries and each other. Furthermore, the index that lists the largest companies of the entire Eurozone (EURO STOXX) has been included, as this could determine whether or not the findings of Wojcik from 2002 still hold true today (even though this is technically not a not a national index). All these countries have developed economies, a strong legal environment and shareholder protection. Therefore the findings of for example la Porta et al. (1999), that countries that have weaker shareholder protection have more concentrated ownership structures, cannot be tested. As that would require a more heterogeneous sample of countries. Looking at the companies that are listed on the country’s dominant index makes sure that all the companies are of relatively large size. It makes sense to focus on these larger firms, as they have a larger impact on the national and international economy (Holderness 2009: 1379-1380). It is also evident that they should be studied to better understand global political economy as they account for more and more of the total share of the global and national economic activities (Starrs 2013). As was mentioned in the introduction, the descriptive empirical analysis could furthermore make a useful contribution towards the research on corporate ownership, as the mapping of this ownership of dominant stock-market indices using Orbis data has not been done. During the rest of the paper, the name of the index shall be followed by the number of
companies that are listed on that index, so AEX 25, with the goal of reminding the reader of the difference in sizes. The resulting list of countries and the corresponding indices is presented below:
1. United States - S&P 500 2. United Kingdom - FTSE 100 3. Germany - DAX 30
4. France - CAC 40 5. Japan - NIKKEI 225 6. Netherlands - AEX 25
7. Eurozone - EURO STOXX 50
In order to answer the broader descriptive question of how current cross-country corporate ownership is structured, creating more concrete empirical sub-questions could help. Based on the theoretical framework and the availability of data, the following three questions should be answered by the descriptive analysis:
1. In what countries are the shareholders of the companies in the specific index domiciled? 2. Which specific shareholders hold a relatively large positions in an index and or multiple indices?
3. To what extent is ownership concentrated or dispersed in a specific index?
The Orbis Company Database
In order to answer these sub-questions, ownership data of the companies listed on the chosen indices must be collected. The ownership data in this research comes from the Orbis company database. This database contains information on companies from all over the world, listed and unlisted. It holds information on more than 120 million private companies, including stock and ownership data. For this paper, a query was created for each index, to extract all the companies that were listed, with all the available shareholders. So the S&P 500 query resulted in a table where each row represented a shareholder, for example Blackrock Inc., with the target company, for example Apple Inc., the percentage of stocks in that company, and of course in which countries these shareholders are based. Each row also contained the market capitalization, of the target company. All the data used in this research is from the year 2017.
There are however also shortcomings to using this kind of direct ownership data. If an investor uses other companies or institutions to invest in other companies, the data will not always show the true owner ‘behind the scenes’. These layered ownership networks can be mapped by going recursively through the owners of the owners (Vitali et al. 2011 and la Porta et al. 1999). This falls outside the scope of this research. Another point to be made is that data is never perfect, some of the companies had less than 100% of total shares in the database, this is probably because not all
(smaller) investors are listed on the databases. Some of the companies had a total of shares of more than 100%, this is most probably because of double counting of shares do to custodians for example. When there was a double owner for one specific company (two or more investors were considered as duplicates when they had the same Bureau van Dijk ID number) only the investor with the highest percentage of shares was used in the analysis.
Research Methods
Now a word on the methods for analysis. The sub-questions defined above can be answered by compiling the data based on different characteristics. The analysis on the raw Orbis data has been done using the Python open source programming language. Answering the first question can simply be done by looking at the domiciled country of all the investors in a company. The compiled
descriptive statistics, such as the total value of shares in an index for a specific country (see Table 1), can then be used to order these groups. The same can be done for question 3, this time looking at individual shareholders (Table 2). Question 3 can be answered by looking at the distribution of ownership blocks in each index. Meaning, what are the sizes of all ownership blocks of each index. As said earlier, it would be a good idea to use the combination of the breadth and depth in the way Fichtner et al. used (2017), as the combination of these dimensions will give a more accurate account. For the composing of the analysis, there are some further points that need to be taken into
consideration. There are furthermore some other things that need to be taken into consideration. Holderness warns about using country average data in the ownership-concentration literature (2014). The basic problem with aggregate data analysis is that it can lead to incorrect inferences when the within cluster (or between individual units) variance is large. Even though this research will not make use of statistical inference, it is important to keep in mind that claims based on compiled data should be checked by looking at the firm level. When, for example, 200 unique US domiciled investors hold 400 billion dollars in shares in companies listed on CAC 40, the claim that US investors hold more shares per investor than Dutch investors cannot be made, as in theory one of those investors could hold more than half of that 400 billion. Therefore when necessary, a drilldown to a subject level analysis will be performed to make a more valid claim.
Doing research on corporate ownership also leads to the question whether ownership equals control. According to the thesis of Berle and Means there should be little control for shareholders, at least if ownership is dispersed. The section on corporate governance and past empirical research showed however that there is not a clear consensus on whether listed companies in the US and other countries do actually have dispersed or more concentrated structures of ownership. Trying to answer question 3 could therefore be a relevant contribution to the discussions in this strand of literature. When, for example, focussing on the amount of foreign shareholder blocks in the AEX 25, one has to be cautious to assign influence to these shareholders, as they might be entities that are holding shares in someone else's name. This is why La Porta et al. measured control by combining direct investments
and indirect investments (1999). If a someone holds 5% directly in a company but also holds 5% extra via indirect investments, her potential influence would obviously be larger than would appear when only looking at direct investments. This scenario might also true when measuring the domiciled country of investors, as the ‘actual’ investor might be of another nationality then the entities that is holding the shares. Since the data for this research only contains direct investments, this need to be kept in mind when making claims.
A final note for the methods section considers the size of the dataset. Heemskerk et al. proposed a standard procedure for working with Big Corporate Network Data (BCND) (2018). Even though they mostly talk about network studies, there are also valuable lessons for non-network oriented research. They talk how the relationship between the researcher and the data has changed since the shift towards BCND. It used to be that a researcher had to do her analysis mostly by hand, which resulted in a firm understanding and familiarity with the data. As of recent, like in this research, it has become possible to use BCND with “off-the-shelf information providers such as Orbis, Boardex or Thompson One” (idem: 5). It has become impossible to keep an oversight on the entire dataset. This can be illustrated with another paper by Heemskerk and Takes, where they used a dataset of the largest one million companies to map the community structure of the global corporate elite, also with the Orbis database (2015). This leads to some problems with BCND research. One of these problems is that of data incompleteness. They give two examples, using also the Orbis database, on how aggregate data might be incorrect because of this (idem: 20-21). They point out however, that reason for this data incompleteness is due to the lower quality of smaller firms in Mexico and Greece (the countries used in the examples). As the companies used in this research are all listed on the dominant indices of large developed economies, the data is most likely of better quality.
Results and Analysis
This section will cover the empirical findings that resulted from the compiled ownership data of companies listed on the seven stock-market indices. The first part will try to answer empirical sub-questions 1 and 2, by compiling the ownership data based on nationality and individual investors. The second part will cover empirical sub-question 3, by creating ownership distributions based on the different sizes of shareholder blocks. The last section will focus on the Big Three.
Nationality of the shareholders
In order to make claims about the current structures of corporate ownership a first step is to determine where the owners of these companies are domiciled. Table 1 displays the compiled ownership of investors grouped by the country that they are domiciled in. For each index the top ten based on the total value of shares is presented. The first column of a specific index shows the countries in which the investors are domiciled. The second column shows the total value of shares in billions of US
dollars of that group. This was calculated by taking the sum of all the shares times their value. Looking at the SP500 for example, shareholders that are domiciled in the US hold a total of 16.485 billion dollars in the companies listed on the index. This is 78% of the total market capitalization of the companies listed on the SP500. And these shares are held by 1737 unique investors.
The first empirical question was: In what countries are the shareholders of the companies in
the specific index domiciled? Looking at Table 1, the first thing that stands out is that the US
domiciled investors hold the second largest position in companies listed on the CAC 40, DAX 30 and NIKKEI 225 and have the largest position in two other non-US indices: FTSE 100, AEX 25 and EURO STOXX 50. Furthermore, only in the SP500 and NIKKEI 225 the domestic shareholders hold more than 50% of the total value of the index. In terms of expectations based on previous research this should not be a surprise (Starrs 2013, Fichtner, Heemskerk & Garcia-Bernardo 2017, Fichtner 2017 and Wojcik 2002). It is however remarkable that US based investors are largest in two non-Anglo-American indices; AEX 25 and EURO STOXX 50. So when Wojcik said on European market integration: “Americanisation of European capital markets rather than European capital market integration” back in 2002, might still be true today.
Furthermore, China does not even come close to the US in terms of total value of foreign investments in these indices. This corresponds with the findings of Starrs (2013). China (CN) only belongs to the top ten investors in DAX 30. This could further legitimate Starrs his claim that just looking at domestic economic measures does not show the whole picture. There are however two things to consider here. One, as pointed out in the Data and Research Methods section, Chinese investors might invest via other entities, who are not based in China themselves. And second, perhaps more relevant for this research, the total value of shares does not give an indication on the distribution of shareholder blocks. These distributions will be compared later on.
There are other countries that stand out. Investors based in Great-Britain are also prominent in every index (even though they are second in their domestic index), they are also the most invested country next to the US investors in the SP 500, even more than the neighbour Canada. As an member of Anglo-America this might not be surprising. Another country that stands out is Norway, which is a much smaller economy then the US, GB or China, but are in every list nonetheless. “Norway via its funds” can also be found in Table 2, which displays the largest investors per index. This is most probably due to their substantial sovereign wealth fund (Sovereign Wealth Fund Institute 2018). One more thing that stands out is the fact that the top ten of NIKKEI 225, the only Asian index, has only European countries and the US apart from their own domestic shareholders and Chinese shareholders. Bermuda also appears on all top ten’s except for EURO STOXX 50. After inspection it appears that there three large companies that operate from Bermuda: The largest of which is Invesco, who holds 52% of all positions by shareholders based in Bermuda in all indices, second is Fidelity International, they hold 25%, and third is Lazard, which holds 20%. The executive offices of these companies are respectively in: Atlanta, Boston, and New York. All three US cities.
Table 1: Compiled ownership statistics per country. Shareholders are grouped by country and ordered in terms of the total worth of shares. Columns for each index: Country ISO code, Compiled worth of shares in billion $ (percentage of total market cap of given index), number of unique investors.
Source: author, based on Orbis data 2017
Another thing that stands out is the large group of investors of who the country is unknown. In order to see if this is faulty data from Orbis or that there is something structurally different about these investors (or perhaps a bit of both), the characteristics of these investors need to be compared within indices and across indices. After inspection by hand, it appears that most private persons and families fall inside this group. An example of such an shareholder (although a outlier), is Mr. Bezos, who still holds 16.3% of the shares in Amazon (listed on the SP 500). Further investigation into this group falls outside of the scope of this research, but could be interesting for future work.
The largest shareholders
Table 2 shows the top ten largest investors based on the total value of their shares per index. The calculations used to give these results were the same as for Table 1, with the exception of compiling stocks per individual investor. If the largest investor appeared to be a custodian of one or more other investors, they were excluded. In addition, Blackrock, Vanguard and State Street have been
emphasised by underlining them (if present in the top ten) in each index.
The second empirical question was: Which specific shareholders hold a relatively large
positions in an index and or multiple indices? Table 2 shows that the entire top ten of the SP 500
consists of US domiciled investors. NIKKEI 225 and EURO STOXX 50 contain six domestic
investors (only counting Eurozone countries for the latter). France has five that are listed as domestic. DAX 30 has four, not counting the founders of the SAP company because the country ISO code was not available. FTSE 100 and AEX 25 only have three domestic investors in the top ten.
SP 500 FTSE 100 AEX 25 CAC 40 DAX 30 NIKKEI 225 EUROSTOXX50
1 US 16.485 (78%) 1656 US 951 (40%) 36 7 US 240 (31%) 18 2 FR 690 (36%) 11 5 DE 405 (35%) 90 JP 1637 (63%) 48 3 US 785 (24%) 227 2 n.a 889 (3%) 431 GB 637 (26%) 40 9 NL 194 (24%) 52 US 425 (39%) 19 6 US 245 (22%) 12 8 US 506 (19%) 17 3 FR 629 (19%) 93 3 GB 666 (3%) 180 BM 76 (3%) 9 GB 95 (12%) 12 7 n.a. 322 (16%) 54 n.a. 172 (14%) 28 n.a. 143 (5%) 15 3 n.a. 548 (16%) 311 4 CA 582 (2%) 79 NO 73 (3%) 11 n.a. 46 (5%) 49 CH 69 (3%) 24 FR 61 (5%) 26 GB 70 (2%) 10 5 DE 319 (9%) 59 5 JP 414 (1%) 16 n.a 71 (2%) 95 6 FR 38 (4%) 38 GB 61 (3%) 10 5 GB 49 (4%) 91 NO 42 (1%) 9 NL 182 (5%) 29 6 CH 384 (1%) 26 CH 68 (2%) 34 LU 37 (4%) 10 NO 43 (2%) 7 NO 46 (4%) 7 FR 36 (1%) 11 ES 160 (4%) 281 7 FR 323 (1%) 27 FR 65 (2%) 40 BE 37 (4%) 5 LU 39 (2%) 23 CH 26 (2%) 16 CH 31 (1%) 10 GB 142 (4%) 118 8 BM 259 (1%) 9 ZA 46 ( 1%) 34 NO 20 (2%) 4 DE 37 (1%) 20 CN 16 (1%) 7 CA 19 (0%) 20 NO 92 (2%) 8 9 NO 254 (1%) 17 CA 41 (1%) 42 BM 16 (2%) 4 BE 36 (1%) 14 QA 16 (1%) 4 DE 15 (0%) 10 CH 86 (2%) 22 10 DE 188 (0%) 22 BE 40 (1%) 7 CH 13 (1%) 16 BM 20 (1%) 4 BM 13 (1%) 3 BM 15 (0%) 5 IT 57 (1%) 41
Table 2: Ten Largest Investors in terms of compiled share value. Per index: name of investor, domiciled country, total value of shares in the specific index in billion $. The Big Three have been underlined. Note: Custodians have been excluded, as these hold shares on behalf of others.
SP500 FTSE100 AEX25 CAC40 DAX30 NIKKEI225 EUROSTOXX50
1. Vanguard Group Inc (US) (1730) Blackrock, Inc (US) (162) Blackrock, Inc (US) (35) Financiere Jean Goujon (FR) (102) Blackrock, Inc (US) (61) Blackrock, Inc (US) (123) Blackrock, Inc (US) (138) 2. Blackrock, Inc (US) (1510) Capital Group Co Inc (US) (86) Capital Group Co Inc (US) (35) Christian Dior SE (FR) (73) Founders* (n.a) (30) The Minister of Finance (JP) (95) Financiere Jean Goujon (FR) (102) 3. State Street Corporation (US) (1065) Vanguard Group Inc (US) (74) Heineken Holding NV (NL) (31) Blackrock, Inc (US) (68)
Norway via its funds (NO) (29) Nippon Telegraph and Telephone Corporation (JP) (72) Capital Group Co Inc (US) (73) 4. Capital Group Co. (US) (720) Standard Life Aberdeen PLC (GB) (66) ING Groep NV (NL) (19)
France via its funds (FR) (56)
Vanguard Group Inc (US)
(29)
Vanguard Group Inc (US)
(70) Christian Dior SE (FR) (73) 5. FMR LLC (US) (566) State Street Corporation (US) (57) Vanguard Group Inc (US) (18) Sas Rue La Boetie (FR) (54) KFW Bankengruppe (DE) (27) Nippon Life Insurance Company (JP) (49) Vanguard Group Inc (US) (72) 6. T Rowe Price Group Inc (US) (455) Legal & General Group PLC (GB) (54) Unilever PLC (GB) (17) Bettencourt, Famille (n.a.) (45) Porsche Automobil Holding SE (DE) (23) Daiwa Securities Group Inc. (JP) (48)
Norway via its funds (NO) (61) 7. Wellington Management Group LLP (US) (328) Norway via its funds (NO) (53) Norway via its funds (NO) (15) Artemis (FR) (43) IHO Verwaltungs GMBH (DE) (20)
Norway via its funds (NO) (40) Mr Amancio Ortega (ES) (60) 8. Northern Trust Corporation (US) (294) JPMorgan Chase Bank (US) (44) Mittal Family (n.a.) (13) Capital Group Co. Inc. (US)
(43) Deutsche Bank AG (DE) (20) Mitsubishi UFJ Financial Group (JP) (37) Stichting Anheuser-Busch INBEV (NL) (56) 9. Bank of New York Mellon Corporation (US) (293) Invesco LTD (BM) (42) Intel Holdings B.V. (NL) (12) Investisseurs Institutionnels Europeens (n.a) (41) State Street Corporation (US) (18) Toyota Motor Corporation (JP) (34)
Sas Rue La Boetie (FR) (50) 10. JP Morgan Chase & Co (US) (279) Her Majesty Department of Treasury (GB) (34) State Street Corporation (US) (11) Institutionnels Etrangers (n.a) (40) Sas Rue La Boetie (FR) (15) Capital Group Co Inc (US) (26)
France via its funds (FR) (46) *founders of SAP SE. Source: author, based on Orbis data 2017
There appear to be four governmental owners in Table 2; ‘Norway via its Funds’ in multiple indices, ‘Her Majesty Department of Treasury’ in FTSE 100, ‘France via its funds’, and ‘The minister of finance’ in NIKKEI 225. ‘France via its funds’ holds 56 billion dollars in the companies on the CAC 40. This total value of shares is made up from one 30-50% position, four 10-30% blocks and more smaller positions in other companies. These large blocks could indicate that the French government is invested with the (potential) aim to hold influence over those companies. As said earlier, the large sovereign wealth fund of Norway is most likely the reason that they are present in five of the indices.
Table 3: Shareholder blocks held by domestic investors.
Size of block
SP500 FTSE100 AEX25 CAC40 DAX30 NIKKEI225 EUROSTOXX50
0-1% 24655 1562 49 341 123 763 859 1-5% 6225 495 22 124 44 2118 191 5-10% 1462 58 8 21 9 539 30 10-30% 387 14 8 21 19 95 31 30-50% 11 1 0 3 2 7 4 >50% 12 2 2 4 4 10 3 unknown 283 1013 25 40 26 555 398
Source: author, based on Orbis data 2017
Table 4: Shareholder blocks held by foreign investors. Note: blocks held by investors where the domiciled country was unknown are excluded.
Size of block
SP500 FTSE100 AEX25 CAC40 DAX30 NIKKEI225 EUROSTOXX50
0-1% 15798 4913 1209 1696 1180 4297 2556 1-5% 1643 1026 295 323 245 1084 587 5-10% 87 196 48 51 34 152 73 10-30% 33 54 9 18 4 10 40 30-50% 2 3 3 3 0 3 4 >50% 0 4 1 0 0 1 0 unknown 1120 219 113 192 163 220 704
Source: author, based on Orbis data 2017
The Big Three are also very prominent in Table 2. They make up the top three in the SP 500, where Vanguard is the largest. In the non-US indices however, Blackrock is by far the biggest in terms of the value of their assets. The later section which is specially devoted to the Big Three will demonstrate how large the underlying distribution of shareholder blocks of the Big Three are. As this matters to what extent they hold potential shareholder power.
Distributions of shareholder blocks
It is not just important to look at where the shareholders come from and who the largest shareholders are in terms of their asset value. It is also relevant to know who actually holds potential power over these companies. This sub section will therefore focus on the dimension of depth. As said earlier, this research considers all sizes of a shareholder position to be blocks, with the goal of creating a
distribution. Tables 1-6 therefore display the distribution of these ownership blocks. Table 3 and Table 4 compare the sizes of positions in a given index between domestic and foreign shareholders. Investors of which the country was missing in the data have been excluded from Table 4 as their location is uncertain. Table 5 shows the shareholder blocks held by US based investors and Table 6 shows Chinese investors. These tables will give a more complete picture of the international ownership structure.
Table 5: Shareholder blocks held by United States based investors.
Size of block
FTSE100 AEX25 CAC40 DAX30 NIKKEI225 EUROSTOXX50
0-1% 2062 458 705 441 2011 925 1-5% 577 161 187 118 723 234 5-10% 144 32 37 19 116 32 10-30% 24 3 3 1 3 6 30-50% 0 0 0 0 1 0 >50% 0 0 0 0 0 0 unknown 43 4 15 19 9 49
Source: author, based on Orbis data 2017
Table 6: Shareholder blocks held by Chinese investors.
Size of block
SP500 FTSE100 AEX25 CAC40 DAX30 NIKKEI225 EUROSTOXX50
0-1% 19 75 10 13 6 1 13 1-5% 0 2 1 2 4 1 8 5-10% 0 1 0 0 2 1 2 10-30% 1 0 0 1 0 0 0 30-50% 0 0 0 0 0 0 0 >50% 0 0 0 0 0 0 0 unknown 12 1 0 0 0 0 3
Source: author, based on Orbis data 2017
As the data in Table 1 was compiled, it said nothing about the distribution of shareholder blocks. If foreign shareholders would only hold small positions, that could mean that even though the total value is great, the investors do not hold actual shareholder power. Comparing Table 3 and 4, it is quite clear that there are a lot more smaller foreign investment blocks than domestic. As the size of the blocks grow, domestic investors tend to become the larger group. This difference does however differ per index. There is one clear exception; the foreign investors in the companies listed on the British FTSE 100 are higher in number for each size of the blocks. Table 1 already showed how the US investors hold more in terms of total value in the FTSE 100, it could therefore be that a lot of those foreign investment blocks are from US domiciled investors. Looking at Table 5 that the US do indeed do have a substantial amount of blocks in the FTSE 100. However, of the blocks larger than 10% in the FTSE 100, the US only holds 24, of which none are greater than 30%. There are still 62 blocks between 10-30%, 8 between 30-50% and 4 larger than 50%, all held by foreign investors, none of which is from the US. These are the kind of finding that nuances the actual power of US investors compared to other countries.
As a lot of research focussed on the dominance of the US economic power and as China often is quoted as the rising runner up in terms of political and economic power. Investors from both countries will be compared in Table 5 and Table 6. Table 1 already showed that US investors are more prominent tan Chinese investors in terms of the total value of their assets. Table 2 furthermore showed many more US investors than Chinese investors. However, this data did not contain
made on who truly has more potential influence over these companies. By doing this, the discussion about the prevailing or declining of US hegemony can be supplemented by looking at the potential shareholder power of the investors, instead of just looking at the total value of the investments made in a specific index. Comparing US with Chines investors in Table 5 and Table 6, the first thing that stands out is the low volume of shareholder positions of China in all the indices compared to the US. In terms of depth, Chinese investors only hold two blocks larger than 10%. US investors hold more than 30 of these blocks. It is also interesting to see that Chinese investors are not prevalent in the NIKKEI 225, as Japan is the neighbour of China. Furthermore, there are no majority positions held by either US or Chinese investors. Overall, the US is bigger in every index in terms of breadth and depth. The last empirical sub-question was: To what extent is ownership concentrated/dispersed in a
specific index? La Porta and colleagues said that the ownership of a company is dispersed when there
is no controlling shareholder (1999). Using this definition, ownership is dispersed in most of the companies listed on the indices. Holderness on the other hand said that ownership was concentrated in the US, because many companies had multiple shareholder blocks larger than 5%. The data presented in Tables 3 – 6 show that there are many blocks larger than 5% in each index. Using this second definition would therefore lead to the conclusion that ownership is concentrated. It thus depends on the definition of concentration what the answer of the empirical question is.
The Big Three As mentioned earlier, recent academic research is pointing towards the rapid growth of the three largest passive investment funds: Blackrock, Vanguard and State Street (Fichtner, Heemskerk & Garcia-Bernardo 2017). The presence of the Big Three was already noticed in the analysis on the largest investors per index. With Blackrock as the biggest in most indices. Just as with the analysis of the US however, it is important to put additional focus on the depth of Big Three’s the assets. It is important to keep in mind that due to the nature of the passive investment strategy, the option to exit a company with the goal influencing corporate governance are not available to the Big Three. Passive index funds mirror the indices and are therefore invested in the long term for most of these
companies. This does not mean that the Big Three are passive in terms of trying to influence corporate governance in other ways.
Table 7 and Figure 1 display ownership data of the Big Three. Table 7 shows the number of shareholder blocks per index for each of the Big Three. Figure1 then visualizes the total amount of shareholder blocks of the companies used in the sample. It is important to note that the shareholder blocks from Euronext were not added in figure 1, as some of the companies listed on EURONEXT 50 could also be on other national European indices. This can potentially lead to double counting of blocks. Table 7 shows that the number of blocks always comes close to the number of companies in the given index, which means that the Big Three are invested in almost all the companies that are part
Table 7: Shareholder blocks held by the Big Three. Note: If there were no blocks in a given size range, this size range has been excluded from the Table.
Source: author, based on Orbis data 2017
Figure 1: Compiled shareholder blocks held by the Big Three of all indices. Note: The shareholder blocks from Euronext, as this could lead to double counting.
Source: author, based on Orbis data 2017 Index Size of
Block
Blackrock Vanguard State Street
SP500 1-5% 28 15 349 5-10% 442 299 143 10-30% 27 185 4 FTSE100 0-1% 1 3 20 1-5% 33 93 74 5-10% 57 0 2 10-30% 7 0 0 AEX25 0-1% 1 0 18 1-5% 20 25 7 5-10% 3 0 0 10-30% 1 0 0 CAC40 0-1% 0 0 34 1-5% 26 39 5 5-10% 13 1 1 10-30% 1 0 0 DAX30 0-1% 2 2 7 1-5% 15 27 20 5-10% 12 0 0 NIKKEI225 0-1% 4 10 97 1-5% 126 214 112 5-10% 94 0 6 EUROSTOXX50 0-1% 1 2 25 1-5% 29 48 22 5-10% 19 0 0 10-30% 1 0 2 8 15 176 248 413 567 621 300 152 36 185 4 0 200 400 600 800
Blackrock Vanguard State Street
N u m b er o f sha re h o ld er b lock s Block of 0-1% 1-5% 5-10% 10-30%
of this sample. However, the depth of the investments does differ between Blackrock, Vanguard and State Street. In the SP 500, Vanguard has the largest positions. It holds 185 positions of larger than 10%. Blackrock has the second largest positions and State Street is third in this regard. This is the same order as in Table 2 for SP 500. For the non-US indices, Blackrock has the largest positions, followed by Vanguard and State Street has the smallest positions. Furthermore, none of the Big Three holds positions larger than 30% in any of the indices. Figure 1 demonstrates that Vanguard has the most positions larger than 10%. However, all of these blocks are in the SP500 (see Table 7).
Blackrock has by far the most 5-10% blocks. 179 of the 621 of these blocks are in non-US indices. It thus seems that Vanguard has the deepest positions in SP500 and Blackrock in all the other indices. State Street is smallest in terms of depth.
Great as these differences between the Big Three might be, their overall presence in all the of the indices is significant. However, as this research has focussed on well known indices of larger developed economies, and the Big Three use mutual index funds. The breadth of their assets are not as surprising. It is the size of their assets in some of these companies that are remarkable. It will be interesting to see how these positions will develop in future.
Conclusion and Discussion
The goal of this paper has been to contribute to the empirical literature about corporate ownership. Numerous findings have been presented by using the unique combination of Oribis data from 2017 and limiting the scope to national stock-market indices. With the purpose of answering the main research question some concluding remarks can be made.
The internationalization of the financial markets and the cross-border flows of capital started in the mid 1980’s. The findings showed in this paper once again underscores the international nature of contemporary corporate ownership of some of the companies listed. Foreign investors are present in terms of breadth in all the indices that were investigated.
Although foreign investors are prominent in all indices in terms of the total value of shares compared to the domestic investors. The composition of the shareholder blocks distribution showed that it differs per index to what extent domestic shareholders hold larger positions. Hence, the dimension degree of ‘separation of ownership and control’ is probably also different per index. This question of ownership concentration can also vary depending on the used definition,
Starrs measured the dominance of the US by focussing on the profit shares of US domiciled companies (2014). The findings of this paper showed the dominance of US investors versus all other nationalities. They are the largest foreign investors in every index. In the FTSE 100, AEX 25 and EURO STOXX 50, US investors even had a larger position. The “Americanisation of European capital markets”, as Wojick said in 2002, has also been revalidated. Furthermore, the comparison of US investors with Chinese investors showed that the former are larger in every dimension.
heavily invested in the companies of the used sample. In terms of breadth, they are all three in almost all the companies of the indices. In terms of depth, Vanguard has the largest positions in SP500, but Blackrock has the deepest investments in all the non-US indices. These findings were to be expected based on the existing literature (Fichtner, Heemskerk & Garcia-Bernardo 2017).
To conclude, the results of this research are mostly unambiguous and in accordance with previous scientific research. However, they could still be falsified if more accurate data and methods would yield different results. Furthermore, generalizing these findings to all cross-country corporate ownership structures in terms of companies or indices is unwarranted. The sample used this research is not representative of all national stock-market indices, nor the companies that are listed on them. The goal was to specifically describe ownership of a sample that would cover past research. Next to generalization, the research was also limited by the fact that the data only included direct ownership. Future research could therefore be conducted by looking more at the deeper levels of ownership networks (as in Vitali et al. 2011) and indirect ownership (as La Porta et al. 1999).
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