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Blockholder dispersion and firm value

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  • Konijn, Sander J. J.
  • Kräussl, Roman
  • Lucas, André

Abstract

This paper analyzes the impact of blockownership dispersion on firm value. Blockholdings by multiple blockholders is a widespread phenomenon in the U.S. market. It is not clear, however, whether dispersion among blockholder is preferable to having a more concentrated ownership structure. To test for the direction of the effect, we use a large dataset of U.S. firms that combines blockholder information, shareholder rights information, debt ratings, accounting information, and financial markets information. We find that a large fraction of aggregated block ownership negatively affects Tobin's Q. The negative impact is larger if blockowners are more dispersed, suggesting that a concentrated ownership structure is to be preferred on average. Results are robust to controlling for blockholder type as well as proxies for shareholder rights. Our empirical findings are also confirmed if we study the impact of ownership dispersion on firm debt ratings rather than Tobin's Q. --

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Bibliographic Info

Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2010/05.

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Date of creation: 2010
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Handle: RePEc:zbw:cfswop:201005

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Keywords: Corporate Governance; Ownership Structure; Multiple Blockholders; Firm Value;

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References

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  1. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance And Equity Prices," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(1), pages 107-155, February.
  2. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, American Finance Association, vol. 29(2), pages 449-70, May.
  3. Marshall E. Blume & Felix Lim & A. Craig MacKinlay, . "The Declining Credit Quality of US Corporate Debt: Myth or Reality?," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 3-98, Wharton School Rodney L. White Center for Financial Research.
  4. Volpin, Paolo F., 2002. "Governance with poor investor protection: evidence from top executive turnover in Italy," Journal of Financial Economics, Elsevier, Elsevier, vol. 64(1), pages 61-90, April.
  5. Dimson, Elroy, 1979. "Risk measurement when shares are subject to infrequent trading," Journal of Financial Economics, Elsevier, Elsevier, vol. 7(2), pages 197-226, June.
  6. Admati, Anat R & Pfleiderer, Paul & Zechner, Josef, 1994. "Large Shareholder Activism, Risk Sharing, and Financial Market Equilibrium," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(6), pages 1097-1130, December.
  7. Marshall E. Blume & Felix Lim & A. Craig MacKinlay, . "The Declining Credit Quality of US Corporate Debt: Myth or Reality?," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 03-98, Wharton School Rodney L. White Center for Financial Research.
  8. K.J. Martijn Cremers & Vinay B. Nair & Chenyang Wei, 2007. "Governance Mechanisms and Bond Prices," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 20(5), pages 1359-1388, 2007 07.
  9. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, 1999. "Investor Protection and Corporate Valuation," Harvard Institute of Economic Research Working Papers 1882, Harvard - Institute of Economic Research.
  10. Marshall E. Blume & Felix Lim & A. Craig Mackinlay, 1998. "The Declining Credit Quality of U.S. Corporate Debt: Myth or Reality?," Journal of Finance, American Finance Association, American Finance Association, vol. 53(4), pages 1389-1413, 08.
  11. K.J. Martijn Cremers & Vinay B. Nair, 2003. "Governance Mechanisms and Equity Prices," Yale School of Management Working Papers, Yale School of Management ysm376, Yale School of Management.
  12. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages 461-88, June.
  13. Kang, Jun-Koo & Shivdasani, Anil, 1995. "Firm performance, corporate governance, and top executive turnover in Japan," Journal of Financial Economics, Elsevier, Elsevier, vol. 38(1), pages 29-58, May.
  14. Maury, Benjamin & Pajuste, Anete, 2005. "Multiple large shareholders and firm value," Journal of Banking & Finance, Elsevier, Elsevier, vol. 29(7), pages 1813-1834, July.
  15. repec:fth:pennfi:67 is not listed on IDEAS
  16. Demsetz, Harold & Villalonga, Belen, 2001. "Ownership structure and corporate performance," Journal of Corporate Finance, Elsevier, Elsevier, vol. 7(3), pages 209-233, September.
  17. Karpoff, Jonathan M. & Malatesta, Paul H. & Walkling, Ralph A., 1996. "Corporate governance and shareholder initiatives: Empirical evidence," Journal of Financial Economics, Elsevier, Elsevier, vol. 42(3), pages 365-395, November.
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Cited by:
  1. Cheng, Minying & Lin, Bingxuan & Wei, Minghai, 2013. "How does the relationship between multiple large shareholders affect corporate valuations? Evidence from China," Journal of Economics and Business, Elsevier, Elsevier, vol. 70(C), pages 43-70.

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