Ownership Concentration in Privatized Firms: The Role of Disclosure Standards, Auditor Choice, and Auditing Infrastructure


  • We thank Najah Attig, Ray Ball, Phil Beaulieu, Jochen Bigus, Narjess Boubakri, Jean-Claude Cosset, Shane Dikolli, John Eichenseher, Sadok El Ghoul, Steve Fortin, Ken Klassen, Richard Leftwich (the editor), Clive Lennox, Gordon Roberts, Oumar Sy, Josep Tribó, and especially an anonymous referee for insightful comments. Our research has also benefited from comments from participants at the 2006 AAA Annual Meeting in Washington, the 2006 FMA European Conference in Stockholm, the 2006 AAA Audit Midyear Meeting in Los Angeles, the 2005 International Conference on Finance in Copenhagen, the 10th Symposium on Finance, Banking, and Insurance in Karlsruhe, the 2005 Northern Finance Association Meeting in Vancouver, and the 3rd International Conference on Corporate Governance in Birmingham. Finally, we appreciate generous financial support from the Social Sciences and Humanities Research Council and excellent research assistance from Mouafek Abada and Dermot Murphy. All errors remain solely our responsibility.


We rely on a unique data set to estimate the impact of disclosure standards and auditor-related characteristics on ownership concentration in 190 privatized firms from 31 countries. Accounting transparency can help alleviate the agency conflict between minority investors and controlling shareholders, which is evident in the extent of ownership concentration, since the expropriation of corporate resources hinges on these private benefits remaining hidden. After controlling for other country-level and firm-level determinants, we find weak (no) evidence that extensive disclosure standards (auditor choice) reduce ownership concentration. In contrast, we report strong, robust evidence that ownership concentration is lower in countries with securities laws that specify a lower burden of proof in civil and criminal litigation against auditors, consistent with Ball's [2001] predictions. Collectively, our research implies that minority investors worldwide value legal institutions that discipline auditors in the event of financial reporting failure over both the presence of a Big 5 auditor and better disclosure standards. Re-estimating our regressions on a broad sample of western European public firms provides similar evidence on all of our predictions.