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On the Nature of European Holding Groups

Опубликовано на портале: 16-06-2006
International Review of Law and Economics. 1998.  Vol. 19. No. 3. P. 255-277. 
This paper offers a new rationale for the emergence of European holding groups and especially for the frequently observed intergroup ownership connections. Large holding groups typically control many of the most important companies in the country where they reside and usually consist of (sometimes many) non-holding firms (i.e., industrial companies and banks) with layers of holding companies on top. The holding firms in these layers often show shared ownership between groups, whereas ownership of the non-holding firms may be shared as well. So far no explanation for these intergroup links has been proposed. This paper offers a rationale for this phenomenon. Specifically, drawing on European corporate law, it is shown that holding structures with intergroup connections develop as a response to the need for a flexible, renegotiation-free cooperation mechanism. This mechanism, which solves a principal-agent problem when decisions are sequential and not fully enforceable, becomes especially important in the face of capital constraints. Finally, the paper also investigates the interaction between holding firms and the frequently used shareholder syndicate contracts.