Papers by Konstantin Kosenko
RePEc: Research Papers in Economics, 2020
Cambridge University Press eBooks, Feb 28, 2021
The paper, which is based on a newly constructed and unique database, examines the emergence, own... more The paper, which is based on a newly constructed and unique database, examines the emergence, ownership structure, diversification, evolution and economic activity of business groups in Israel whose development over the years occurred against the background of government activity in the business sector and the financial markets, the rapid expansion of the economy, geopolitical shocks and the extremely unusual replacement of the ruling elites. Using panel data on 650 public companies from 1995 to 2006, we identify twenty major business groups controlling about 160 listed companies and close to a half of total stock market capitalization, while the 10 largest groups' segment of the market capitalization is among the largest in the western world and amounts to 30 percent. These groups are family-controlled and highly diversified across different industries with common pyramidal structure of ownership: roughly 80 percent of all group-affiliated companies belong to business pyramids. Business groups are dominant especially in the financial sector, where half of banks and insurance companies are group-affiliated. Finally, using both stock market-based measures (Tobin's Q), and accounting measures of profitability (e.g. ROA), we find that group affiliation has no significant impact on accounting profitability, but it is associated with lower market valuation. In part, this seems to be due to conflicts between controlling and minority shareholders; and in part, this may reflect the fact that in a developed economy, where external markets are well-developed, business groups have no advantage in allocating resources internally. The reasons for their existence appear to have more to do with prestige, political ties, family considerations and other factors than with economic efficiency.
Journal of Financial Stability, Aug 1, 2022
Social Science Research Network, 2018
In this paper we investigate the matching process between banks and large borrowers that switch f... more In this paper we investigate the matching process between banks and large borrowers that switch from single to multiple bank lending relationships in the corporate loan market. Using a unique dataset on all large credit exposures (about 214,000) of all Israeli commercial banks in the period between 2005 and 2015, we highlight the systemic externalities of micro-prudential regulation. We find, inter alia, that regulatory limits on credit exposures aimed at limiting an individual bank's concentration risk lead large borrowers to turn to multiple lending. This increases the level of asset commonality among banks, and the systemic risk arising from this indirect contagion channel. We find that large borrowers are more likely to establish a new lending relationship with big banks and with the banks that are familiar with the borrower's business profile, whether through existing loans to a group of borrowers to which the borrower belongs, or through acquaintance with the industry in which the borrower operates. Furthermore, we find that borrowers tend to establish a new lending relationship with banks whose asset portfolio is correlated with that of their original lender. This result may possibly be related to the tendency of banks to become more similar in their credit portfolios in order to benefit from a "too many to fail" implicit guarantee
NBER working papers are circulated for discussion and comment purposes. They have not been peer-r... more NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
Strategic Management Journal, Dec 29, 2018
Control-magnifying (pyramidal) business groupsmultiple tiers of partially-owned listed affiliates... more Control-magnifying (pyramidal) business groupsmultiple tiers of partially-owned listed affiliates and fully-owned private affiliates, a dominant organizational form around the worldare virtually absent in America today. Using newly-assembled historical data, we show that such groups were ubiquitous in the US economy in the 1930s. They came under attack because of their economic and political sway: Some New Deal reformsproscriptions against public utilities pyramids, intercorporate dividend taxes and rules governing investment companieswere explicitly aimed at deterring existing groups and preventing new ones from forming. Others, e.g., estate taxes and securities law reforms, may have also worked against them. No single reform triggered the immediate dissolution of groups; they broke up under an ongoing anti-big business sentiment. These events offer lessons for policymakers today.
Oxford University Press eBooks, Aug 5, 2010
Journal of law, finance and accounting, 2021
Large business enterprises, from the railroad barons of nineteenth century America to Amazon and ... more Large business enterprises, from the railroad barons of nineteenth century America to Amazon and Google today, are often perceived as important for economic performance and, at the same time, as potential abusers of their political and economic power. In this study, we compare the experiences of four countries that implemented policies to curb the influence of one type of large corporate entities-pyramidal business groups: The US in the 1930s; Japan during the American occupation (1945-1952); Korea following the Asian crisis (late 1990s); and Israel in the last decade (2010-2018). Novel regulatory measures, applied consistently in the US and Japan, where the extreme political circumstances were very favorable to economic reform, led to the demise of pyramidal business groups in these countries. Israel, where the reforms did not follow a severe crisis, also used specifically-designed regulatory tools over a decade-long period, resulting in a significant decline in the number and size of business groups. Korea, after experimenting with variety of regulatory measures, chose to rely primarily on corporate governance-focused reforms to curb the influence of the chaebol, but with limited effects; groups continue to dominate the Korean economy. Our findings point to the importance of specifically-designed regulatory tools, applied consistently over time, against the backdrop of a pro-reform political climate.
Social Science Research Network, 2011
Identifying the corporate controller (controlling shareholder, ultimate owner) is an essential pr... more Identifying the corporate controller (controlling shareholder, ultimate owner) is an essential prerequisite for any debate on the corporate governance of a specific firm and of entire markets. This paper aims to provide a comprehensive, precise and economically sound method for identifying control relations on the corporate level and especially in complex ownership structures. We apply weighted voting games literature as a theoretical framework for our analysis and use the Shapley-Shubik and the Banzhaf power indices to determine control rights. The core element of the proposed method, distinguishing our study from others, in solving the puzzle of corporate control, is the simultaneous analysis of both the specific ownership map within the corporation and the corporate network in which the firm is embedded. We implemented our algorithm into a Java computer program and tested it on a real-world data set of corporate ownership in the Israeli market. The direct product of the analysis of these data is a comprehensive map of control relations at every time point. We find that the corporate control relations identified by our method are richer and more accurate than those provided by different official sources.
Journal of Financial Stability
SSRN Electronic Journal, 2011
Identifying the corporate controller (controlling shareholder, ultimate owner) is an essential pr... more Identifying the corporate controller (controlling shareholder, ultimate owner) is an essential prerequisite for any debate on the corporate governance of a specific firm and of entire markets. This paper aims to provide a comprehensive, precise and economically sound method for identifying control relations on the corporate level and especially in complex ownership structures. We apply weighted voting games literature as a theoretical framework for our analysis and use the Shapley-Shubik and the Banzhaf power indices to determine control rights. The core element of the proposed method, distinguishing our study from others, in solving the puzzle of corporate control, is the simultaneous analysis of both the specific ownership map within the corporation and the corporate network in which the firm is embedded. We implemented our algorithm into a Java computer program and tested it on a real-world data set of corporate ownership in the Israeli market. The direct product of the analysis of these data is a comprehensive map of control relations at every time point. We find that the corporate control relations identified by our method are richer and more accurate than those provided by different official sources.
An earlier version of this paper appeared under the title “Business Groups in the United States: ... more An earlier version of this paper appeared under the title “Business Groups in the United States: A Revised
CEPR Discussion Paper Series, 2013
The extent to which business groups ever existed in the United States and, if they did exist, the... more The extent to which business groups ever existed in the United States and, if they did exist, the reasons for their disappearance are poorly understood. In this paper we use hitherto unexplored historical sources to construct a comprehensive data set to address this issue. We find that (1) business groups, often organized as pyramids, existed at least as early as the turn of the twentieth century and became a common corporate form in the 1930s and 1940s, mostly in public utilities (e.g., electricity, gas and transportation) but also in manufacturing; (2) In contrast with modern business groups in emerging markets that are typically diversified and tightly controlled, many US groups were focused in a single sector and controlled by apex firms with dispersed ownership; (3) The disappearance of US business groups was largely complete only in 1950, about 15 years after the major anti-group policy measures of the mid-1930s; (4) Chronologically, the demise of business groups preceded the ...
Corporate science in America emerged in the interwar period, as some companies set up state-ofthe... more Corporate science in America emerged in the interwar period, as some companies set up state-ofthe-art corporate laboratories, employed highly-skilled scientists, and conducted basic research of the kind we would associate today with academic institutions. Using a newly-assembled data set on both publicly-traded and private US companies between 1926 and 1940 with information on corporate ownership, corporate organization (diversification and business group affiliation) and corporate research (publications, patents and their citations and market values), we attempt to explain the historical rise of corporate quasi-academic research. We argue that this phenomenon was driven by companies trying to make up for institutional voids, in this case, the weakness of academic research, which made access to science in certain fields costly for US firms. Measuring institutional voids, or field-specific scientific backwardness, in two different ways, we find that large and diversified corporations...
The paper, which is based on a newly constructed and unique database, examines the emergence, own... more The paper, which is based on a newly constructed and unique database, examines the emergence, ownership structure, diversification, evolution and economic activity of business groups in Israel whose development over the years occurred against the background of government activity in the business sector and the financial markets, the rapid expansion of the economy, geopolitical shocks and the extremely unusual replacement of the ruling elites. Using panel data on 650 public companies from 1995 to 2006, we identify twenty major business groups controlling about 160 listed companies and close to a half of total stock market capitalization, while the 10 largest groups' segment of the market capitalization is among the largest in the western world and amounts to 30 percent. These groups are family-controlled and highly diversified across different industries with common pyramidal structure of ownership: roughly 80 percent of all group-affiliated companies belong to business pyramids. Business groups are dominant especially in the financial sector, where half of banks and insurance companies are group-affiliated. Finally, using both stock market-based measures (Tobin's Q), and accounting measures of profitability (e.g. ROA), we find that group affiliation has no significant impact on accounting profitability, but it is associated with lower market valuation. In part, this seems to be due to conflicts between controlling and minority shareholders; and in part, this may reflect the fact that in a developed economy, where external markets are well-developed, business groups have no advantage in allocating resources internally. The reasons for their existence appear to have more to do with prestige, political ties, family considerations and other factors than with economic efficiency.
CEPR Discussion Paper Series, 2020
Large business enterprises, from the railroad barons of nineteenth century America to Amazon and ... more Large business enterprises, from the railroad barons of nineteenth century America to Amazon and Google today, are often perceived as important for economic performance and, at the same time, as potential abusers of their political and economic power. In this study, we compare the experiences of four countries that implemented policies to curb the influence of one type of large corporate entities â?? pyramidal business groups: The US in the 1930s; Japan during the American occupation (1945-1952); Korea following the Asian crisis (late 1990s); and Israel in the last decade (2010-2018). Novel regulatory measures, applied consistently in the US and Japan, where the extreme political circumstances were very favorable to economic reform, led to the demise of pyramidal business groups in these countries. Israel, where the reforms did not follow a severe crisis, also used specifically-designed regulatory tools over a decade-long period, resulting in a significant decline in the number and ...
Journal of Law, Finance, and Accounting
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Papers by Konstantin Kosenko