Ownership Concentration and the Aversion to Dilution: Evidence from Acquisition Financing

Abstract External growth by acquisitions is a frequent strategy in consolidating markets. Firms with a high concentration of voting rights can be limited in such dynamic environments when they are less likely to use equity to finance acquisitions. This study provides results in that direction for German exchange listed companies, indicating that control enhancement motives dominate risk reduction considerations of large shareholders and may thus limit corporate growth. This reluctance from equity financing does not depend on a specific group of blockholders such as family firms. The findings provide new insights for the debate within the European Union on reintroducing multiple-vote shares, which is expected to increase the concentration of voting rights and, in turn, affect acquisition financing. JEL classification: G32, G34