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Large Shareholders and Corporate Policies

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  • Cronqvist, Henrik

    () (The Ohio State University)

  • Fahlenbrach, Rüdiger

    () (The Ohio State Unversity)

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    Abstract

    We develop an empirical framework that allows us to analyze the effects of heterogeneity across large shareholders, using a new blockholder-firm panel data set in which we can track all unique blockholders among large public U.S. 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 appetite 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, hut consistent with systematic selection for mutual funds. Finally, we analyze sources of the heterogeneity, and find that blockholders with larger block size, board membership, or direct management involvement as officers are associated with larger effects on corporate policies and firm performance.

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    Bibliographic Info

    Paper provided by Institute for Financial Research in its series SIFR Research Report Series with number 60.

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    Length: 49 pages
    Date of creation: 15 Sep 2007
    Date of revision:
    Handle: RePEc:hhs:sifrwp:0060

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    Related research

    Keywords: Large shareholders; blockholders; corporate policies; firm performance;

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    References

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    Cited by:
    1. Marko Ogorevc & Sonja Slander, 2011. "Shareholders and wage determination – bringing in “space”," ERSA conference papers ersa10p1279, European Regional Science Association.

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