Does Ownership Structure Matter?

Date01 June 2017
Published date01 June 2017
Does Ownership Structure Matter?
Sheridan Titman
McCombs School of Business, University of Texas, Austin, Texas 78712
Capital assets are held in a variety of ownership structures that can be
characterised by how they are taxed, whether or not their equity is publicly traded,
and by the relationship between the ownership of the assets and the management of
the assets. When taxes and regulations change, the popularity of the different
ownership structures change. These changes in ownership structure can affect how
the assets are managed, which can in turn inuence innovation.
Keywords: corporations, master limited partnerships, real estate investment trusts,
private equity, family businesses
JEL classification: G31,G38
1. Introduction
Capital assets are held in a variety of ownership structures that can be characterized along
a number of dimensions. Some are public and some are private. Some are directly taxed
and others are what are known as pass-through vehicles, which pay no taxes themselves
and pass on their taxable income directly to their owners. Finally, some are large
diversied organisations while others are focused on just one line of business. This paper
provides some thoughts about these different forms of ownership and raises the
following questions:
1. Why do we observe this diversity of ownership structuresand to what extent does this
diversity reect the diversity of asset types versus the diversity of investor types?
2. Can we characterise the types of assets that are held in the different ownership
structures? Is there a correlation between asset characteristics and ownership
structures? Why might some structures be more appropriate for some assets?
3. Do we understand why the popularity of different structures changes over time? To
what extent are the changes due to changes in taxes and regulations?
4. Does any of this really matter? Is there a link between how capital assets are owned
and how they are managed? Do some structures facilitate innovation better than
This paper was presented as the Keynote Speech at the 2016 EFMA conference in Basel,
Switzerland. I would like to thank the Editor John Doukas, and Jonathan Cohn and Amin
Shams for helpful discussions.
European Financial Management, Vol. 23, No. 3, 2017, 357375
doi: 10.1111/eufm.12120
© 2017 John Wiley & Sons, Ltd.
others? Do policy choices that inuence ownership structure affect efciency and
My thoughts on this topic are based mainly on my analysis of two industries, real estate
and energy. Close to 90% of the worlds physical assets (as opposed to intangible assets
like patents, brands, etc.) are used for either energy production or distribution or are some
type of real estate, and these assets are held in a wide variety of ownership structures that
include family businesses, public corporations, and various forms of both private and
public partnerships and trusts. While I will discuss differences in the types of assets held
in the different ownership structures, it is also noteworthy that the different structures
often hold very similar assets and in fact there are numerous examples of assets changing
hands from one ownership structure to another.
As illustrated in Figure 1, the composition of ownership structures has been changing
over time. The market capitalization of publicly traded common equity has grown
modestly in the U.S., however, as Doidge et al. (2015) note, the number of publicly
traded rms listed on major exchanges in the United States has dropped in half over the
past 20 years. While it is difcult to pinpoint the exact cause of this decline, it is partly
due to public rms being acquired by both other public rms and by private equity funds,
partly due to fewer private rms going public, and perhaps partly due to the increased
popularity of alternative forms of publicly traded entities, namely REITs and MLPs
(publicly traded real estate and energy investment vehicles that I will dene shortly),
which have grown substantially in this time period. For commercial real estate we have
seen a substantial increase in the share of US commercial real estate held by REITs and
private equity rms over the past 20 years, and decreases in the amount held by
corporations and family ofces. Over this same time period oil and gas assets and
pipelines in the continental United States have migrated from large integrated oil
companies to MLPs and smaller private equity funded entities.
There are a number of potential rationales for these ownership changes. Some of the
changes may have been precipitated by either structural changes in the economy or
technology changes that affected the efciency of alternative ownership structures. For
example, improvements in information technology may have attened the optimal
organisational structure, and this may have had an effect on the operating efciency of the
alternative structures. While these technological shocks may be relevant, I will focus my
Fig. 1. Total Market Cap of Firms Listed on US Exchanges
Data Source: CRSP. [Color gure can be viewed at]
© 2017 John Wiley & Sons, Ltd.
358 Sheridan Titman

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