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Estimating the Effects of Large Shareholders Using a Geographic Instrument

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  • Bo Becker

    ()
    (Harvard Business School, Finance Unit)

  • Henrik Cronqvist

    ()
    (Claremont McKenna College, Robert Day School of Economics and Finance)

  • Rüdiger Fahlenbrach

    ()
    (Ohio State University, Fisher College of Business and Ecole polytechnique Fédérale de Lausanne)

Abstract

Large shareholders may play an important role for firm performance and policies, but identifying this empirically presents a challenge due to the endogeneity of ownership structures. We develop and test an empirical framework which allows us to separate selection from treatment effects of large shareholders. Individual blockholders tend to hold blocks in public firms located close to where they reside. Using this empirical observation, we develop an instrument - the density of wealthy individuals near a firm's headquarters - for the presence of large, non-managerial individual shareholders in firms. These shareholders have a large impact on firms, controlling for selection effects.

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Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 10-028.

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Length: 64 pages
Date of creation: Sep 2009
Date of revision: Feb 2010
Handle: RePEc:hbs:wpaper:10-028

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Cited by:
  1. Howard Bodenhorn, 2013. "Large Block Shareholders, Institutional Investors, Boards of Directors and Bank Value in the Nineteenth Century," NBER Working Papers 18955, National Bureau of Economic Research, Inc.
  2. Benjamin E. Hermalin & Michael S. Weisbach, 2012. "Information Disclosure and Corporate Governance," Journal of Finance, American Finance Association, vol. 67(1), pages 195-234, 02.
  3. Ovtchinnikov, Alexei V. & Pantaleoni, Eva, 2012. "Individual political contributions and firm performance," Journal of Financial Economics, Elsevier, vol. 105(2), pages 367-392.
  4. Rydqvist, Kristian, 2010. "Tax Arbitrage with Risk and Effort Aversion - Swedish Lottery Bonds 1970-1990," SIFR Research Report Series 70, Institute for Financial Research.
  5. Kasbi, Salma, 2009. "Ownership Concentration and Capital Structure Adjustments," Economics Papers from University Paris Dauphine 123456789/3862, Paris Dauphine University.
  6. Cronqvist, Henrik & Fahlenbrach, Rüdiger, 2013. "CEO contract design: How do strong principals do it?," Journal of Financial Economics, Elsevier, vol. 108(3), pages 659-674.
  7. Masulis, Ronald W. & Wang, Cong & Xie, Fei, 2012. "Globalizing the boardroom—The effects of foreign directors on corporate governance and firm performance," Journal of Accounting and Economics, Elsevier, vol. 53(3), pages 527-554.
  8. Ismail Adelopo & Kumba Jallow & Peter Scott, 2012. "Multiple large ownership structure, audit committee activity and audit fees: Evidence from the UK," Journal of Applied Accounting Research, Emerald Group Publishing, vol. 13(2), pages 100-121.
  9. Massa, Massimo & Yasuda, Ayako & Zhang, Lei, 2013. "Supply uncertainty of the bond investor base and the leverage of the firm," Journal of Financial Economics, Elsevier, vol. 110(1), pages 185-214.
  10. Wagner, Alexander F., 2011. "Board independence and competence," Journal of Financial Intermediation, Elsevier, vol. 20(1), pages 71-93, January.
  11. Dreber, Anna & Rand, David G. & Garcia, Justin R. & Wernerfelt, Nils & Lum, J. Koji & Zeckhauser, Richard, 2010. "Dopamine and Risk Preferences in Different Domains," Working Paper Series rwp10-012, Harvard University, John F. Kennedy School of Government.
  12. Antonio Falato & Dan Li & Todd Milbourn, 2012. "CEO pay and the market for CEOs," Finance and Economics Discussion Series 2012-39, Board of Governors of the Federal Reserve System (U.S.).
  13. Shive, Sophie, 2012. "Local investors, price discovery, and market efficiency," Journal of Financial Economics, Elsevier, vol. 104(1), pages 145-161.
  14. Humphery-Jenner, Mark & Suchard, Jo-Ann, 2013. "Foreign VCs and venture success: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 16-35.
  15. Jesse Edgerton, 2011. "Agency problems in public firms: evidence from corporate jets in leveraged buyouts," Finance and Economics Discussion Series 2011-15, Board of Governors of the Federal Reserve System (U.S.).

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