Estimating the Effects of Large Shareholders Using a Geographic Instrument

58 Pages Posted: 3 Mar 2008 Last revised: 27 Sep 2010

See all articles by Bo Becker

Bo Becker

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); ECGI

Henrik Cronqvist

University of Miami - Department of Finance

Rüdiger Fahlenbrach

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: February 18, 2010

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.

Keywords: Large shareholders, blockholders, corporate policies, firm performance, liquidity, instrumental variable estimation

JEL Classification: G32, G34, G35

Suggested Citation

Becker, Bo and Cronqvist, Henrik and Fahlenbrach, Rüdiger, Estimating the Effects of Large Shareholders Using a Geographic Instrument (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. Available at SSRN: https://ssrn.com/abstract=1101012 or http://dx.doi.org/10.2139/ssrn.1101012

Bo Becker

Stockholm School of Economics ( email )

Drottninggatan 98
Dept. of Finance
111 60 Stockholm, 11160
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

ECGI ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Henrik Cronqvist

University of Miami - Department of Finance ( email )

5250 University Drive
314-E Jenkins Building
Coral Gables, FL 33146
United States
(305) 284-9482 (Phone)

HOME PAGE: http://sites.google.com/site/henrikcronqvist/

Rüdiger Fahlenbrach (Contact Author)

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

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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