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Three Essays on Billionaire Corporate Control
- Author / Creator
- Bordin Bordeerath
This thesis examines the impact of billionaires on their firms, equity markets and their countries’ economies. In Chapter 2, I use a hand-collected dataset of billionaire wealth from 1986 to 2015 and document that billionaire wealth over GDP has been increasing substantially around the world. As of 2015, billionaires in all regions, except Africa, own assets worth more than 10% of GDP, while the median number of billionaires per country is only six. A few billionaires controlling vast amounts of corporate assets can both benefit and damage an economy. This is because heir billionaires inherit both corporate control and political connections from their parents, making them likely pursue rent-seeking to set up barriers against new entrants. In contrast, founder billionaires are creative entrepreneurs who invest in innovative projects that can potentially dislodge corrupt incumbents. Consistent with this argument, I find that countries with more founder wealth over GDP grow more rapidly, have lower barriers to entry, and higher IPO activity. In contrast, countries with more heir wealth over GDP are associated with the opposite. The positive impact of founder billionaires wanes after they remain billionaires for longer than 20 years. Arguably, this pattern of results is difficult to explain with other hypotheses than creative destruction brought about by billionaires.
Although the results from Chapter 2 strongly suggest that billionaires can impact their national economies, they still leave causality unresolved. I address this issue in Chapter 3 where I exploit billionaires’ sudden deaths as exogenous shocks to their countries’ capital markets. I hypothesize that because billionaires control large fractions of their national economies, the sudden loss of these individuals may have an impact not only on the firms they control but also on the entire market. In support of this hypothesis, I show that the market-wide volatility increases significantly around the day they suddenly lose power. This increase in volatility is larger in less developed countries, suggesting that billionaires are more influential in these countries. Moreover, the average market index drops by approximately 0.3% in response to the sudden loss of these individuals. Cumulative abnormal returns on the market index are more negative in less developed countries, but are positive in countries whose per capita GDPs are higher than 41,738 USD. This result suggests that big business groups are beneficial in less developed economies, but detrimental in more developed ones.
In Chapter 4, my co-author, James Shou, and I explore how the impact of billionaires propagates throughout the stock market. We focus on one particular country, Russia, in order to control for any country-specific characteristics. We then exploit the unanticipated arrests of Russian oligarchs from 2000 to 2019 as exogenous shocks to the equity market. The results show that the average value of all firms significantly declines by 0.4% around the arrest day. Firm value drops the most for firms under the oligarch’s control (-15%), less for firms within the oligarch’s industries (-0.6%), and the least for the firms outside of the oligarch’s industries (-0.3%). These drops in firm value are statistically significant for the first two groups of firms, but insignificant for the third. These results suggest that oligarchs are valuable not only to their firms but also to other firms in the same economy.
- Graduation date
- Fall 2020
- Type of Item
- Doctor of Philosophy
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