Blockholder Representation on the Board: Theory and Evidence

47 Pages Posted: 21 Nov 2022

See all articles by Samed Krüger

Samed Krüger

Bergische Universitat Wuppertal - BUW - Schumpeter School of Business and Economics

Peter Limbach

University of Bielefeld; Centre for Financial Research (CFR)

Paul Voss

HEC Paris - Finance Department; Finance Theory Group (FTG)

Date Written: November 7, 2022

Abstract

We present a model that helps explain why only few blockholders seek board representation despite little direct costs. In the model, inefficiently few blockholders take a board seat because it signals adverse information to outside investors, lowering trading profits. However, once taken, board seats commit blockholders to stay invested and monitor management. In light of our results, negative stock returns to appointments of blockholder-directors need not reflect rent extraction but are in line with blockholders improving performance. We present evidence consistent with our model’s predictions using German data, which mitigates endogeneity concerns and provides considerable variation in blockholders.

Keywords: Blockholder-directors, Board and committee composition, Investor horizon, Monitoring, Shareholder value

JEL Classification: G3, G32, G34

Suggested Citation

Krüger, Samed and Limbach, Peter and Voss, Paul, Blockholder Representation on the Board: Theory and Evidence (November 7, 2022). Available at SSRN: https://ssrn.com/abstract=4270536 or http://dx.doi.org/10.2139/ssrn.4270536

Samed Krüger

Bergische Universitat Wuppertal - BUW - Schumpeter School of Business and Economics ( email )

Gaußstraße 20
Wuppertal, 42119
Germany

Peter Limbach

University of Bielefeld ( email )

Centre for Financial Research (CFR) ( email )

Albertus-Magnus-Platz
Köln, 50923
Germany

HOME PAGE: http://www.finance.uni-koeln.de

Paul Voss (Contact Author)

HEC Paris - Finance Department ( email )

France

HOME PAGE: http://https://sites.google.com/view/paulvoss

Finance Theory Group (FTG) ( email )

United States

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