Essays on Corporate Ownership Structure, Insider Trading, and Index Fund Voting Patterns

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Copyright: Zhang, Xueting
This thesis consists of three stand-alone research projects on corporate ownership structure across countries, insider trading, and passive institutional investors. The first study examines the effect of social trust on corporate ownership structure. Using a large sample of public firms across 42 countries, I find that a culture of trust in a country leads to a more dispersed corporate ownership structure. I also investigate how trust affects the evolution of ownership structure following firms’ IPO and the channels through which trust leads to dispersed ownership. I show that corporate ownership is more likely to become widely held and diffuses at a faster speed in countries with a higher level of social trust. Trust also encourages the selling of block ownership by large shareholders and the use of equity financing by firms. The second study investigates whether fast economic integration but slow legal integration leads to more aggressive insider trading by foreigners in possession of material non-public information about domestic firms. Using a large sample of mergers and acquisitions (M&As) around the world, I find systematically a higher likelihood of insider trading in target firm securities before the announcements of cross-border deals compared to domestic deals. The difference is mainly driven by cross-border deals where the acquirer is from a country with high corruption and low social norms, and where the target is in a country with stricter enforcement of insider trading laws. The third study examines the role of family interest in explaining and influencing individual funds’ voting behaviour. Specifically, I focus on the voting patterns of index funds in the event of corporate M&As. I find that the interest of fund families in the target is significantly positively associated with the likelihood of an affiliated index fund voting for a deal in the bidder merger approval meeting. However, an index fund’s own interest in the target does not explain its voting pattern. A higher level of aggregate bidder ownership held by fund families that have greater active interest in the target is also associated with worse deal performance. Taken together, the evidence suggests that cooperation between active and index funds within fund families potentially weakens the resistance of bidder shareholders to bad mergers.
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Zhang, Xueting
Moshirian, Fariborz
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PhD Doctorate
UNSW Faculty
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