The Effects of Legal Reforms on the Ownership Structure of Listed Companies

A general view in the corporate governance literature is that corporate ownership structures are rather stable in time and change slowly. However, even if changes in ownership structures are difficult due to path dependence, anecdotal evidence indicates that some sort of transition towards the U.S. style corporate ownership could be occurring in civil-law countries. The aim of this article is to test the so-called “law and finance” view, which predicts that this convergence will only happen if the appropriate regulatory framework is in place. We test this prediction using longitudinal data from Italian listed companies, assessing the effects of recent legal reforms. Our results show that an increase in the protection of investors’ rights is associated with a lower use of control enhancing mechanisms and a lower separation of control and cash flow rights, while it is less evident if it is associated with a more dispersed ownership. These findings carry important implications for theory and practice.