Access Restriction

Author Bernt Arne Ødegaarda B., C.
Source CiteSeerX
Content type Text
File Format PDF
Subject Domain (in DDC) Computer science, information & general works ♦ Data processing & computer science
Subject Keyword Diversification Cost ♦ Concentrated Equity Stake ♦ Private Benefit ♦ Ownership Concentration ♦ Percentage Point ♦ Benchmark Portfolio ♦ Annual Term ♦ Empirical Study ♦ Cost Estimate ♦ Actual Diversification ♦ Risky Asset ♦ Complementary Problem ♦ Undiversified Portfolio ♦ Norwegian Equity Owner ♦ Concentrated Portfolio ♦ Extant Estimate ♦ Little Light ♦ Diversified Portfolio ♦ Undiversified Equity Portfolio ♦ Unique Data Set ♦ Significant Cost ♦ Jel Code ♦ Present Portfolio Composition
Abstract While the hypothesis that ownership concentration can affect the value of a company has seen a lot of empirical study, little light has been shed on a complementary problem, that these concentrated owners have a cost of their position due to an undiversified portfolio. Using a unique data set of the actual diversification of all Norwegian equity owners, we show that the largest owners of a corporation in fact have very undiversified equity portfolios, and that such owners have significant costs to their concentrated portfolios. At the level of risk of a benchmark portfolio, if they were to move from their present portfolio composition in risky assets to a well diversified portfolio, their returns would have increased by about 13 percentage points in annual terms. We ask whether this cost can be explained by estimated benefits of ownership concentration (private benefits), and show that extant estimates of private benefits are too low to offset our cost estimates. (JEL Codes:
Educational Role Student ♦ Teacher
Age Range above 22 year
Educational Use Research
Education Level UG and PG ♦ Career/Technical Study