Large Shareholders and Corporate Policies
China Europe International Business School (CEIBS)
Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute
December 27, 2007
AFA 2007 Chicago Meetings Paper
Review of Financial Studies, Forthcoming
Fisher College of Business Working Paper No. 2006-03-004
EFA 2007 Ljubljana Meetings Paper
Charles A. Dice Center Working Paper No. 2006-14
We develop an empirical framework that allows us to analyze the effects of heterogeneity across large shareholders, and we construct a new blockholder-firm panel data set in which we can track all unique blockholders among large U.S. public firms. We find statistically significant and economically important blockholder fixed effects in investment, financial, and executive compensation policies. This evidence suggests that blockholders vary in their beliefs, skills, or preferences. Different large shareholders have distinct investment and governance styles: they differ in their approaches to corporate investment and growth, their appetites for financial leverage, and their attitudes towards CEO pay. We also find blockholder fixed effects in firm performance measures, and differences in style are systematically related to firm performance differences. Our results are consistent with influence for activist, pension fund,corporate, individual, and private equity blockholders, but consistent with systematic selection for mutual funds. Finally, we analyze sources of the heterogeneity, and find that blockholders with a larger block size, board membership, direct management involvement as officers, or with a single decision maker are associated with larger effects on corporate policies and firm performance.
Number of Pages in PDF File: 50
Keywords: Large shareholders, blockholders, corporate policies, firm performance
JEL Classification: G31, G32, G34, G35
Date posted: March 16, 2006 ; Last revised: September 11, 2008
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