Abstract

http://ssrn.com/abstract=565504
 
 

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Large Blocks of Stock: Prevalence, Size, and Measurement


Jennifer Dlugosz


Washington University in Saint Louis - John M. Olin Business School

Rüdiger Fahlenbrach


Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Paul A. Gompers


Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Andrew Metrick


Yale School of Management; National Bureau of Economic Research (NBER)


Journal of Corporate Finance, pp. 594-618, June 2006

Abstract:     
Large blocks of stock play an important role in many studies of corporate governance and finance. Despite this important role, there is no standardized data set for these blocks, and the best available data source, Compact Disclosure, has many mistakes and biases. In this paper, we document these mistakes and show how to fix them. The mistakes and biases tend to increase with the level of reported blockholdings: in firms where Compact Disclosure reports that aggregate blockholdings are greater than 50 percent, these aggregate holdings are incorrect more than half the time and average holdings for these incorrect firms are overstated by almost 30 percentage points. For researchers using uncorrected blockholder data as a dependent variable, these errors will increase the standard error of coefficient estimates but do not appear to cause bias. However, we find that if blockholders are used as an independent variable, economically significant errors-in-variables biases can occur. We demonstrate these biases using a representative analysis of the relationship between firm value and outside blockholders. An online appendix to our paper provides a "clean" data set for our sample firms and time period. For researchers who need to work outside of this sample, we also test the efficacy of alternative (cheaper) fixes to this data problem, and find that truncating or winsorizing the sample can reduce about half of the bias in our representative application. The data used in this project is available free of charge from the authors (metrick@wharton.upenn.edu).

Number of Pages in PDF File: 29

Keywords: Corporate governance, large shareholders, ownership

JEL Classification: G3

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Date posted: July 19, 2004  

Suggested Citation

Dlugosz, Jennifer and Fahlenbrach, Rüdiger and Gompers, Paul A. and Metrick, Andrew, Large Blocks of Stock: Prevalence, Size, and Measurement. Journal of Corporate Finance, pp. 594-618, June 2006. Available at SSRN: http://ssrn.com/abstract=565504 or http://dx.doi.org/10.2139/ssrn.565504

Contact Information

Jennifer Dlugosz
Washington University in Saint Louis - John M. Olin Business School ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
Rüdiger Fahlenbrach
Ecole Polytechnique Fédérale de Lausanne ( email )
Quartier UNIL-Dorigny
Extranef 211
1015 Lausanne, CH-1015
Switzerland
++41-21-693-0098 (Phone)
++41-21-693-3010 (Fax)
HOME PAGE: http://sfi.epfl.ch/fahlenbrach.html
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Paul A. Gompers
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-6297 (Phone)
617-496-8443 (Fax)
Harvard University - Entrepreneurial Management Unit ( email )
Cambridge, MA 02163
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Andrew Metrick (Contact Author)
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
(203)-432-3069 (Phone)
HOME PAGE: http://mba.yale.edu/faculty/profiles/metrick.shtml

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  28
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