Chapter 34 PrinciplesPrinciplesofof

CorporateCorporateFinanceFinance

Ninth Edition

Governance and Corporate Control Around The World

Slides by

Matthew Will

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved

McGraw Hill/Irwin

34- 2

Topics Covered

Financial Markets and InstitutionsOwnership, Control and GovernanceDo These Differences Matter

34- 3

Financial Claims

0

20

40

60

80

100

120

140

160

US UK Europe Japan Non-JapanAsia

Bank Loans Stock Market Private Bond Market

Perc

ent

The value of the financial claims on firms in 2003 as a percentage of GDP.

34- 4

Financial Claims

0

20

40

60

80

100

120

140

160

180

US UK Europe Japan

Banks Insurance and funds Equity Others

327% 306% 192% 267%

Perc

ent

Household Portfolio Allocation (1995-2002) as a percentage of GDP

34- 5

Financial Claims

0

20

40

60

80

100

120

140

160

180

US UK Europe Japan

Debt Equity Loans Deposits and currency Other

Perc

ent

Financial Institution Portfolio Allocation (1995-2002) as a percentage of GDP

34- 6

Financial Claims

0

10

20

30

40

50

60

70

US UK Europe Japan

Banks Equity Loans and trade credits Other

Perc

ent

Non-Financial Corporations’ Portfolio Allocation (1995-2002) as a percentage of GDP

34- 7

Japanese Bank Ownership

Sumitomo Corporation

Sumitomo Trust

Sumitomo Bank

1.9%

4.3%

4.4%

1.8%

2.2%

2.2%

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Cross Holdings

ShareholderSumitomo

BankSumitomo

TrustSumitomo

Corporation

Sumitomo Metal

IndustriesSumitomo Chemical NEC

S. Bank - 2.2 4.4 3.4 4.7 3S. Trust 2.2 - 4.3 6.8 5 3.2S. Corporation 1.8 1.9 - 2.1S. Metal IndustriesS. ChemicalNEC 1.9 2.7Other S. Group 7.5 3.8 9.5 4.3 7.8 6.8Total 11.5 9.8 20.9 16.6 17.5 13

The cross-holdings of common stock between 6 companies in the Sumitomo Group as of 2000. Listed are the ownership as a

percentage of outstanding shares.

34- 9

Ownership of Daimler Benz

Deutsch Bank

Kuwait Government

Mercedes Automobil Holding AG

Widely Held

Widely Held

Stern Auto Beteilig…

Stella Automobil Beteiligungsges

Widely Held

Bayerishe Landesbank

Robert Bosch Komet Automobil Beteiligungsges

Dresdner Bank

25% 25% 25% 25%

25% 25% 50%

28.3% 14% 25.23% 32.37%

Daimler Benz AG

34- 10

European BOD

Codetermination Aufsichtsrat Vorstand Counseil du surveillance Directoire

34- 11

Asian Ownership

Number of Firms in Smaple Family State

Widely Held

Percent of Assets controlled by top

10 familiesHong Kong 330 66.7 1.4 7 32.1 Indonesia 178 71.5 8.2 5.1 57.7 Japan 1240 9.7 0.8 79.8 2.4 Korea 345 48.4 1.6 43.2 36.8 Malaysia 238 67.2 13.4 10.3 24.8 Philippines 120 44.6 2.1 19.2 52.5 Singapore 221 55.4 23.5 5.4 26.6 Taiwan 141 48.2 2.8 26.2 18.4 Thailand 167 61.6 8 6.6 46.2

The ownership of firms in Asia is held by a small number of very wealthy

families.

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ABB Sweden

Wallenberg Family Investor Investor Investor

Shares 5.7% Votes 7.4%

Shares 23.4%

Votes 41.2% Shares 24.3%

Votes 32.8% Shares 27.1%

Votes 35.7%

The pyramid that controls ABB, one of Sweden’s largest companies.

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Voting Control

Australia 23% Italy 29%

Brazil 23% Korea 48%

Canada 3% Mexico 36%

Chile 23% Norway 6%

Denmark 1% South Africa 7%

Finland 0% Sweden 1%

France 28% Switzerland 6%

Germany 9% U.K. 10%Hong Kong -3% U.S. 2%

The value of control-block votes as a proportion of the total firm value.