Large blockholders and stock price crash risk: An international study
45 Pages Posted: 2 Aug 2019 Last revised: 10 Nov 2021
Date Written: November 22, 2021
This study examines the relation between large blockholders and stock price crash risk across 44 countries. The results show that firms held by a large blockholder have a lower firm-specific crash risk than widely held firms and that the higher the proportion of voting rights, the lower is this risk. The results suggest that large shareholders serve as monitors in the company and reduce agency costs by improving investment efficiency, leading to lower stock price crash risk. Further analysis reveals that this mitigating effect is stronger in firms held by a family, another widely held corporation, and the state. By contrast, the results show no such effect in firms held by a large institutional investor. Last, the relation is more pronounced in developed countries and in English common law and German civil law countries, highlighting the role of large blockholders as a complementary governance mechanism rather than a substitutive one.
Keywords: Stock price crash risk, Large blockholder, Ownership structure, Agency costs, Monitoring
JEL Classification: G14, G30, G32, M40
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