Recent Developments in Ownership Structures of German Listed Firms: From Cross-Ownership to Common Ownership

Germany, while being among the top 5 countries worldwide in terms of nominal GDP, is (still) known for a rather unique model of corporate governance and financing: the ‘Deutschland AG’ (or Germany Inc.) with ownership structures characterized by cross-ownership. Our paper titled ‘Recent Developments in Ownership Structures of German Listed Firms: From Cross-ownership to Common Ownership’ challenges this view. Exploring variations in the landscape of corporate ownership in German listed firms, the paper argues that institutional investors have gained prominence, leading to a shift towards common ownership in German listed firms.

Motivation and Historical Context

Before the year 2000, German firms heavily relied on bank loans for external financing, and many listed firms were embedded into an extensive network of cross-shareholdings with financial institutions as focal players, known as ‘Deutschland AG’ or Germany Inc. This system was supported by a tax system that created ‘lock-in’ effects, as capital gains from the sale of shares were exposed to a significant capital gains tax. In 2001, the Social Democrats changed the tax code to incentivize the dissolution of the cross-ownership network. In parallel, around the world institutional investors accumulated increasing amounts of Assets under Management, fueled by both the expansion of capital markets and the shift of household investments from direct holdings to managed assets, a development that led Andrew G Haldane in 2024 to ask whether we are experiencing ‘the age of asset management’.

Analysis and key findings

In view of these developments, the paper empirically explores variations in ownership structures of German publicly listed firms over the 2006–2021 period. Collecting ownership data as provided by Refinitiv for a panel of 9,501 firm-year observations, the paper documents:

1. Rise of Institutional Investors: Institutional investors’ ownership stakes in German listed firms increased significantly over the study period, with average ownership in the mean firm growing by 58% and by 96% in the median firm.
2. Foreign Institutional Ownership: Foreign institutional ownership became a dominant force, reflecting the internationalization of capital markets.
3. Sovereign Wealth Funds (SWFs): SWFs substantially increased their investments in German listed firms, with a rise of approximately 825% in investment holdings value.
4. Major Asset Managers: Allianz, BlackRock, State Street, and Vanguard were analyzed. While Allianz's ownership remained relatively stable, BlackRock and Vanguard saw substantial growth in their German equity portfolios.
5. Block Ownership and Common Ownership Networks: Increasing blockholdings by institutional investors led to the formation of common ownership networks, with BlackRock and Vanguard subsidiaries playing a significant role (see figure below).

Conclusion

The paper highlights the transformation of ownership structures in German-listed firms, emphasizing the growing importance of institutional investors, foreign investors, and major asset managers. Specifically, it highlights the emergence of common ownership networks, which add complexity and require further research to understand their impact on competition and corporate behavior. Understanding the consequences of such ownership dynamics is crucial for regulators, practitioners, and scholars as the global corporate governance landscape evolves. As such, the paper underscores the need for ongoing research and monitoring to ensure effective corporate governance and competitive market dynamics.

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Marc Steffen Rapp is Professor of Business Administration at the University of Marburg.

Andrew Reek is a Research Associate at the University of Marburg.

Michelle Schlosser is a Research Associate at the University of Marburg.

Justus von Appen is a Research Associate at the University of Marburg.