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Estimating the Effects of Large Shareholders Using a Geographic Instrument

  • 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)

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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