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A Theory of Pyramidal Ownership and Family Business Groups


  • Heitor Almeida and Daniel Wolfenzon are at the Stern School of Business, New York University, and the National Bureau of Economic Research. We wish to thank two anonymous referees for insightful comments. We also wish to thank Ken Ayotte, Bernie Black, Mike Burkart, Luis Cabral, Mara Faccio, Rachel Hayes, Oliver Hart, Jay Hartzell, Rafael La Porta, Walter Novaes, Andrei Shleifer, Sheridan Titman, and seminar participants at the 2004 Western Finance Association meetings, the 2004 Corporate Governance Conference at the University of Texas, the 2004 UNC-Duke Conference on Corporate Finance, MIT, Princeton University, the University of Minnesota, Tilburg University, the London Business School, the NYU/Columbia joint seminar, PUC-Rio, the University of Amsterdam, the Stockholm School of Economics, and the University of California San Diego for comments and suggestions. Sadi Ozelge provided excellent research assistance. All remaining errors are our own.


We provide a new rationale for pyramidal ownership in family business groups. A pyramid allows a family to access all retained earnings of a firm it already controls to set up a new firm, and to share the new firm's nondiverted payoff with shareholders of the original firm. Our model is consistent with recent evidence of a small separation between ownership and control in some pyramids, and can differentiate between pyramids and dual-class shares, even when either method can achieve the same deviation from one share–one vote. Other predictions of the model are consistent with both systematic and anecdotal evidence.