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Reading between the blocks

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  • Basu, Nilanjan
  • Paeglis, Imants
  • Toffanin, Melissa

Abstract

We examine the influence of multiple blockholders on the ownership-firm value relationship for a comprehensive sample of US firms. Additional blockholders can either form a coalition with or monitor the largest individual blockholder. The choice between these alternatives influences the manner in which ownership affects firm value. Further, the choice between coalition formation and monitoring is influenced by blockholder identity – individual blockholders tend to form a coalition with while corporate blockholders tend to monitor the largest individual blockholder. Even among individual (corporate) blockholders, there is significant variation in the probability of coalition formation (monitoring). Overall, our findings suggest that the ownership-firm value relationship critically depends on the presence and identity of additional blockholders.

Suggested Citation

  • Basu, Nilanjan & Paeglis, Imants & Toffanin, Melissa, 2017. "Reading between the blocks," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 294-317.
  • Handle: RePEc:eee:corfin:v:45:y:2017:i:c:p:294-317
    DOI: 10.1016/j.jcorpfin.2017.04.017
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    Keywords

    Ownership; Multiple blockholders; Valuation;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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