The Governance Transfer of Blockholders: Evidence from Block Acquisitions and Earnings Management around the World

52 Pages Posted: 3 Sep 2013 Last revised: 20 Jun 2017

See all articles by Lili Dai

Lili Dai

University of New South Wales (UNSW)

Ravi Dharwadkar

Syracuse University - Whitman School of Management

Linna Shi

University of Cincinnati - Lindner College of Business

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Date Written: June 12, 2017

Abstract

We examine the governance transfer effect of corporate blockholders in a sample of 892 block acquisitions across 42 countries from 1990 to 2008. Using earnings management as a proxy for corporate governance outcome, we find that target firms’ earnings management is aligned with that of block acquirers after acquisitions, implying that blockholders transfer their own governance quality to investee firms. We further identify three economic mechanisms that underlie the governance transfer effect, namely, monitoring effectiveness, monitoring cost, and monitoring environment. Our findings provide new insights into the governance role of blockholders.

Keywords: Block Acquisition, Governance Transfer, Earnings Management, International Financial Markets

JEL Classification: G15, G32, G34, M41

Suggested Citation

Dai, Lili and Dharwadkar, Ravi and Shi, Linna and Zhang, Bohui, The Governance Transfer of Blockholders: Evidence from Block Acquisitions and Earnings Management around the World (June 12, 2017). Journal of Corporate Finance, Vol. 45, 2017, Available at SSRN: https://ssrn.com/abstract=2319519 or http://dx.doi.org/10.2139/ssrn.2319519

Lili Dai

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

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

Ravi Dharwadkar

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244-2130
United States

Linna Shi (Contact Author)

University of Cincinnati - Lindner College of Business ( email )

P.O. Box 210211
Cincinnati, OH 45221-0211
United States
(513) 556-2097 (Phone)

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen ( email )

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