The Rise of Dispersed Ownership: The Roles of Law and the State in the Separation of Ownership and Control

Recent scholarship on comparative corporate governance has produced a puzzle. While Berle and Means had assumed that all large public corporations would mature to an end-stage capital structure characterized by the separation of ownership and control, the contemporary empirical evidence is decidedly to the contrary. Instead of convergence toward a single capital structure, the twentieth century saw the polarization of corporate structure between two rival systems of corporate governance: A Dispersed Ownership System, characterized by strong securities markets, rigorous disclosure standards, and high market transparency, in which the market for corporate control constitutes the ultimate disciplinary mechanism; and A Concentrated Ownership System, characterized by controlling blockholders, weak securities markets, high private benefits of control, and low disclosure and market transparency standards, with only a modest role played by the market for corporate control, but with a possible substitutionary monitoring role played by large banks. An initial puzzle is whether such a dichotomy can persist in an increasingly competitive global capital market. Arguably, as markets globalize and corporations having very different governance systems are compelled to compete head to head (in product, labor, and capital markets), a Darwinian struggle becomes likely, out of which, in theory, the most efficient form should emerge dominant. Indeed, some have predicted that such a competition implies an end to history for corporate law. A rival and newer position – hereinafter called the Path Dependency Thesis – postulates instead that institutions evolve along path-dependent trajectories, which are heavily shaped by initial starting points and pre-existing conditions. In short, history matters, because it constrains the way in which institutions can change, and efficiency does not necessarily triumph