Constraints on Large-Block Shareholders

43 Pages Posted: 19 Dec 1998 Last revised: 28 Dec 2022

See all articles by Clifford G. Holderness

Clifford G. Holderness

Boston College - Department of Finance

Dennis P. Sheehan

Pennsylvania State University

Date Written: October 1998


Corporate managers who own a majority of the common stock in their company or who represent another firm owning such an interest appear to be less constrained than managers of diffusely held firms, yet their power to harm minority shareholders must be circumscribed by some organizational or legal arrangements. Empirical investigations reveal that boards of directors in majority-owned firms are little different from firms with diffuse stock ownership. Another source of constraints on a majority shareholders -- capital market activity -- also appears to be no different from firms with diffuse ownership. Finally, there is little evidence that new organizational mechanisms have evolved to constrain managers who own large blocks of stock. The frequency and associated wealth effects of reorganizations of majority shareholder firms, however, indicate that the law constrains managerial majority shareholders, both in their day-to-day management and when they redeem the ownership interest of minority shareholders.

Suggested Citation

Holderness, Clifford G. and Sheehan, Dennis P., Constraints on Large-Block Shareholders (October 1998). NBER Working Paper No. w6765, Available at SSRN:

Clifford G. Holderness (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-2768 (Phone)
617-277-8071 (Fax)

Dennis P. Sheehan

Pennsylvania State University ( email )

Smeal College of Business
University Park, PA 16802
United States
814-863-8512 (Phone)
814-865-3362 (Fax)

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