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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
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- Fall '13