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Relational Investing And Firm Performance

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Author Info

  • Sanjai Bhagat
  • Bernard Black
  • Margaret Blair

Abstract

A substantial academic and popular literature argues that the performance of American corporations might improve if American corporations had long-term outside investors (relational investors) who would hold large stakes, actively monitor management performance, and engage with management in setting corporate policy. Institutional investors can perhaps play this role. We provide the first large-scale test of the hypothesis that relational investing can affect corporate performance. We consider ownership and performance data for more than 1,500 large U.S. companies over a thirteen-year period (1983-1995). Our results provide a mixed answer to the question of whether relational investing affects corporate performance. Our data suggest that there was a period in the late 1980s-a period with a uniquely high level of hostile takeover activity-when the presence of a relational investor was associated with higher stock market returns. This cohort of relational investors may have been able to induce corporate restructuring, whose principal effect was to reduce growth rates while improving profitability. But this pattern was not found in the early 1980s or repeated in the early 1990s. 2004 The Southern Finance Association and the Southwestern Finance Association.

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Bibliographic Info

Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

Volume (Year): 27 (2004)
Issue (Month): 1 ()
Pages: 1-30

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Handle: RePEc:bla:jfnres:v:27:y:2004:i:1:p:1-30

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Web page: http://www.southwesternfinance.org/
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Cited by:
  1. Carine Girard & André Sobczak, 2012. "Towards a Model of Corporate and Social Stakeholder Engagement: Analyzing the Relations Between a French Mutual Bank and Its Members," Journal of Business Ethics, Springer, vol. 107(2), pages 215-225, May.
  2. Bethel, Jennifer E. & Hu, Gang & Wang, Qinghai, 2009. "The market for shareholder voting rights around mergers and acquisitions: Evidence from institutional daily trading and voting," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 129-145, February.
  3. Yan-leung Cheung & J. Thomas Connelly & Piman Limpaphayom & Lynda Zhou, 2005. "Do Investors Really Value Corporate Governance? Evidence from the Hong Kong Market," Working Papers 222005, Hong Kong Institute for Monetary Research.
  4. Carine Girard & Gilles Certhoux, 2010. "Les leviers de création de valeur de configurations d'investisseurs en capital risque : le cas d'un réseau régional de Business Angels," Post-Print hal-00771146, HAL.
  5. Aguilera, Ruth V. & Desender, Kurt A. & Kabbach de Castro, Luiz Ricardo, 2011. "A Configurational Approach to Comparative Corporate Governance," Working Papers 11-0103, University of Illinois at Urbana-Champaign, College of Business.
  6. Jackie Krafft & Yiping Qu & Francesco Quatraro & Jacques-Laurent Ravix, 2013. "Corporate governance, value and performance of firms: New empirical results on convergence from a large international database," Post-Print hal-00786664, HAL.
  7. Desender, Kurt A. & Garcia-Cestona, Miguel A. & Crespi, Rafel & Aguilera, Ruth V., 2009. "Board Characteristics and Audit Fees: Why Ownership Structure Matters?," Working Papers 09-0107, University of Illinois at Urbana-Champaign, College of Business.
  8. Carine Girard & André Sobczak, 2012. "Towards a Model of Corporate and Social Stakeholder Engagement: Analyzing the Relations Between a French Mutual Bank and Its Members," Post-Print hal-00813154, HAL.
  9. Lammertjan Dam & Bert Scholtens, 2013. "Ownership Concentration and CSR Policy of European Multinational Enterprises," Journal of Business Ethics, Springer, vol. 118(1), pages 117-126, November.
  10. Jacob Oded & Yu Wang, 2010. "On the different styles of large shareholders’ activism," Economics of Governance, Springer, vol. 11(3), pages 229-267, June.
  11. Hoffmann, Arvid O.I. & Pennings, Joost M.E. & Wies, Simone, 2011. "Relationship marketing's role in managing the firm-investor dyad," Journal of Business Research, Elsevier, vol. 64(8), pages 896-903, August.
  12. Jennifer Dlugosz & Rudiger Fahlenbrach & Paul Gompers & Andrew Metrick, 2004. "Large Blocks of Stock: Prevalence, Size, and Measurement," NBER Working Papers 10671, National Bureau of Economic Research, Inc.
  13. Wruck, Karen H. & Wu, YiLin, 2009. "Relationships, corporate governance, and performance: Evidence from private placements of common stock," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 30-47, February.
  14. repec:hal:wpaper:hal-00786664 is not listed on IDEAS

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