Shareholder Rights and the Importance of Foreign Shareholders

In many countries shareholders were offered more rights to protect their position against “inappropriate” behaviour of other corporate constituents. Whether these developments resulted in more market participation and deeper and more liquid markets, as argued in law and finance theory, remained an open question. For a large sample of European listed companies we reveal part of the answer: we analyse the evolution of the investment behaviour of foreign shareholders in a large sample of European companies between 1999 and 2007. A steadily growing number of all large stakes belong to foreign shareholders. However, the average voting block of a foreign shareholder decreased in all countries but in Germany. The results show that the hypothesis of a straightforward inverse linear relationship between shareholder rights and ownership concentration is not confirmed. Other features drive the development of ownership structures. These factors are of a legal nature, like the mandatory bid threshold, or are more shareholder specific, like the investment contraints of UCITS