Second nancial institutions are prevented from

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Unformatted text preview: ot just own the shares but is also involved in running the firms. Statistically, in about 82.15 percent of the firms with a controlling shareholder, the controlling shareholder and his family serve as the top executives and appear on the board of directors. The ownership of financial institutions is less concentrated compared to the firms. This is due to the Thai Commercial Banking and Finance Company Law. Unlike non financial companies, the Thai banking and finance company law imposes limits on shareholding patterns of financial intermediaries in two respects. First, no single shareholder (except the government) is allowed to own more than 5 and 10 percent of the shares of banks and finance companies, respectively. The definition of a shareholder includes immediate family as well as companies in which his family owns more than 30 percent. Second, financial institutions are prevented from holding shares of any limited company in excess of 10 percent. Our ownership data reveals that a family group often controls a financial institution via pyramidal shareholding with both financial and non financial companies in the middle of the chain of control. In order not to violate the law, companies in the middle of the chain of control are often owned by their ultimate shareholders for less than 30 percent. In fact, as discussed before, a person does not need to own 30 percent of the shares to be able to control a firm. A shareholding of at least 25 percent is enough to control a company. Similar to the case of the ownership of firms, we use the 25 cut-off to define controlling shareholding. We define a financial company that is owned by an entity or a group of entities which includes families, the 9 government and foreign financial institutions if these entities own at least 5 percent of shares in the case of banks and at 10 percent of the shares in the case of finance companies. Since it is often the case that the largest shareholders of financial institutions do not own more than 25 percent of the shares, we label these large shareholders as major shareholders. There are 16 banks and 52 finance companies that are traded at the Stock Exchange of Thailand as of 1996. The ownership structure of financial institutions are summarized in Panel B of Table 2. Similar to the ownership of the firms, the majority of financial institutions are also family owned. Specifically, about 62.5 percent of banks and 75 percent of finance companies are controlled by either a single family or multiple families. [Insert Table 2 Here] 3.2 Firm-bank connections We analyze the scope of firm-bank connections that are established through the following two methods: Crony relationship, and the board of directors. Hereafter we use the word “bank” as an abbreviation for financial institutions. It includes both banks and finance companies. We define a firm as being “crony connected” to banks when the firm is owned by the country’s most influential families. In emerging economies, a country’s influential families are known to be strongly connec...
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This document was uploaded on 02/28/2014 for the course ECONOMICS fn314 at Harvard.

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