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The effect of block ownership on future firm value and performance

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  • Benamraoui, Abdelhafid
  • Jory, Surendranath Rakesh
  • Mazouz, Khelifa
  • Shah, Neeta
  • Gough, Orla

Abstract

This paper examines the performance of the investment decisions of block owners. The block ownership data is obtained from Dlugosz, Fahlenbrach, Gompers, and Metrick (2006). We find that firm valuation (measured by Tobin’s Q), operating performance (measured by changes in return on assets) and stock performance (measured by excess buy and hold returns) are positively and significantly related to the previous years’ level of block ownership both in terms of the size of the ownership and the number of blockholders. Our results are robust to endogeneity concerns. Regarding whether a specific blockholder is an “insider” or an “outsider” to the firm, we find that the ownership of “outside” blockholders is a key determinant in explaining future firm performance. Note though that this category makes up about two-thirds of the aggregate amount of blockholding in Dlugosz et al. (2006) database, and also includes all blockholders not classified in other categories. In general, we attribute the superior performance to the presence of more blockholders. We also find an inverse association between the volatility in blockownership and the ex-post firm performance measures.

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  • Benamraoui, Abdelhafid & Jory, Surendranath Rakesh & Mazouz, Khelifa & Shah, Neeta & Gough, Orla, 2019. "The effect of block ownership on future firm value and performance," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
  • Handle: RePEc:eee:ecofin:v:50:y:2019:i:c:s1062940817302917
    DOI: 10.1016/j.najef.2019.04.025
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    Cited by:

    1. Chia, Yee-Ee & Lim, Kian-Ping & Goh, Kim-Leng, 2020. "More shareholders, higher liquidity? Evidence from an emerging stock market," Emerging Markets Review, Elsevier, vol. 44(C).
    2. Chee Yoong Liew & YoungKyung Ko & Bee Lian Song & Saraniah Thechina Murthy, 2022. "Directors’ compensation, ownership concentration and the value of the firm: evidence from an emerging market," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(1), pages 155-188, March.

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    More about this item

    Keywords

    Block ownership; Corporate value; Financial performance; Stock return;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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