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Estimating the Effects of Large Shareholders Using a Geographic InstrumentBo BeckerHarvard Business School; National Bureau of Economic Research (NBER) Henrik CronqvistClaremont McKenna College - Robert Day School of Economics and Finance Rüdiger FahlenbrachEcole Polytechnique Fédérale de Lausanne; Swiss Finance Institute February 18, 2010 EFA 2008 Athens Meetings Paper AFA 2009 San Francisco Meetings Paper Fisher College of Business Working Paper No. 2008-03-008 Charles A. Dice Center Working Paper No. 2008-9 Robert Day School of Economics and Finance Research Paper No. 2009-13 Harvard Business School Finance Working Paper No. 1101012 Abstract: 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.
Number of Pages in PDF File: 58 Keywords: Large shareholders, blockholders, corporate policies, firm performance, liquidity, instrumental variable estimation JEL Classification: G32, G34, G35 working papers seriesDate posted: March 3, 2008 ; Last revised: September 27, 2010Suggested CitationContact Information
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