Passive Blockholders, Informational Efficiency of Prices, and Firm Value

41 Pages Posted: 10 Oct 2019 Last revised: 8 Jan 2020

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Choonsik Lee

University of Rhode Island

Carl Hsin-han Shen

Macquarie University, Macquarie Business School

Date Written: September 25, 2019

Abstract

This paper analyzes the role of passive blockholders in corporate governance using data on Schedule 13G filings. We show that firm value increases with the number and aggregate ownership of passive blockholders after controlling for other possible determinants of firm value. More importantly, we show that the informational efficiency of prices (IEP) increases with the number and aggregate ownership of passive blockholders, and IEP is a channel through which passive blockholders affect firm value. Overall, our results suggest that managers perform better when stock prices reflect the economic consequences of their actions promptly and accurately through information-based trading of blockholders.

Keywords: Passive blockholders, Tobin’s q ratio, Informational efficiency of asset price, Liquidity, Causal mediation analysis

JEL Classification: G14, G20, G32, G34

Suggested Citation

Chung, Kee H. and Lee, Choonsik and Shen, Carl Hsin-han, Passive Blockholders, Informational Efficiency of Prices, and Firm Value (September 25, 2019). Review of Financial Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3459271 or http://dx.doi.org/10.2139/ssrn.3459271

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Choonsik Lee

University of Rhode Island ( email )

Ballentine Hall
7 Lippitt Road
Kingston, RI 02881
United States

HOME PAGE: http://sites.google.com/site/choonsiklee79/

Carl Hsin-han Shen

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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