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Large Shareholders and Corporate Policies

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  • Cronqvist, Henrik

    (Ohio State U)

  • Fahlenbrach, Rudiger

Abstract

We develop an empirical framework that allows us to analyze the effects of heterogeneity across large shareholders, and we construct a new blockholder-firm panel data set in which we can track all unique blockholders among large U.S. public firms. We find statistically significant and economically important blockholder fixed effects in investment, financial, and executive compensation policies. This evidence suggests that blockholders vary in their beliefs, skills, or preferences. Different large shareholders have distinct investment and governance styles: they differ in their approaches to corporate investment and growth, their appetites for financial leverage, and their attitudes towards CEO pay. We also find blockholder fixed effects in firm performance measures, and differences in style are systematically related to firm performance differences. Our results are consistent with influence for activist, pension fund, corporate, individual, and private equity blockholders, but consistent with systematic selection for mutual funds. Finally, we analyze sources of the heterogeneity, and find that blockholders with a larger block size, board membership, direct management involvement as officers, or with a single decision maker are associated with larger effects on corporate policies and firm performance.

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Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2006-14.

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Date of creation: Dec 2007
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Handle: RePEc:ecl:ohidic:2006-14

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Cited by:
  1. Tina He & Wilson Li & Gordon Tang, 2012. "Dividends Behavior in State- Versus Family-Controlled Firms: Evidence from Hong Kong," Journal of Business Ethics, Springer, Springer, vol. 110(1), pages 97-112, September.
  2. Cronqvist, Henrik & Fahlenbrach, Rüdiger, 2013. "CEO contract design: How do strong principals do it?," Journal of Financial Economics, Elsevier, Elsevier, vol. 108(3), pages 659-674.
  3. Dutordoir, Marie & Strong, Norman & Ziegan, Marius C., 2014. "Does corporate governance influence convertible bond issuance?," Journal of Corporate Finance, Elsevier, Elsevier, vol. 24(C), pages 80-100.
  4. Marc Essen & J. Oosterhout & Michael Carney, 2012. "Corporate boards and the performance of Asian firms: A meta-analysis," Asia Pacific Journal of Management, Springer, Springer, vol. 29(4), pages 873-905, December.
  5. Miao Luo & Tao Chen & Isabel Yan, 2014. "Price informativeness and institutional ownership: evidence from Japan," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 42(4), pages 627-651, May.
  6. Anderson, Ronald C. & Duru, Augustine & Reeb, David M., 2012. "Investment policy in family controlled firms," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(6), pages 1744-1758.
  7. Achleitner, Ann-Kristin & Kaserer, Christoph & Kauf, Tobias, 2012. "The dynamics of voting ownership in lone-founder, family-founder, and heir firms," Journal of Family Business Strategy, Elsevier, Elsevier, vol. 3(2), pages 79-96.
  8. Joseph P. Hughes & Loretta J. Mester, 2012. "A Primer on Market Discipline and Governance of Financial Institutions for Those in a State of Shocked Disbelief," Departmental Working Papers, Rutgers University, Department of Economics 201204, Rutgers University, Department of Economics.
  9. Alex Edmans, 2013. "Blockholders and Corporate Governance," NBER Working Papers 19573, National Bureau of Economic Research, Inc.
  10. Nguyen, Pascal, 2012. "The impact of foreign investors on the risk-taking of Japanese firms," Journal of the Japanese and International Economies, Elsevier, vol. 26(2), pages 233-248.
  11. Gallego, Francisco & Larrain, Borja, 2012. "CEO compensation and large shareholders: Evidence from emerging markets," Journal of Comparative Economics, Elsevier, vol. 40(4), pages 621-642.
  12. Chen, Zhian & Du, Jinmin & Li, Donghui & Ouyang, Rui, 2013. "Does foreign institutional ownership increase return volatility? Evidence from China," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(2), pages 660-669.
  13. Marko Ogorevc & Sonja Slander, 2011. "Shareholders and wage determination – bringing in “space”," ERSA conference papers ersa10p1279, European Regional Science Association.
  14. Thomas Poulsen, 2013. "Corporate control and underinvestment," Journal of Management and Governance, Springer, Springer, vol. 17(1), pages 131-155, February.
  15. Kim, Kyonghee, 2010. "Blockholder monitoring and the efficiency of pay-performance benchmarking," Journal of Corporate Finance, Elsevier, Elsevier, vol. 16(5), pages 748-766, December.
  16. Larrain, Borja & Urzúa I., Francisco, 2013. "Controlling shareholders and market timing in share issuance," Journal of Financial Economics, Elsevier, Elsevier, vol. 109(3), pages 661-681.
  17. Goldman, Eitan & Strobl, Günter, 2013. "Large shareholder trading and the complexity of corporate investments," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 22(1), pages 106-122.
  18. Guthrie, Katherine & Sokolowsky, Jan, 2010. "Large shareholders and the pressure to manage earnings," Journal of Corporate Finance, Elsevier, Elsevier, vol. 16(3), pages 302-319, June.

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