Large Shareholders and Corporate Policies

Henrik Cronqvist and Ruediger Fahlenbrach

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: We develop an empirical framework that allows us to analyze the effects of heterogeneity across large shareholders, and we construct a new blockholder-firm panel data set in which we can track all unique blockholders among large U.S. public firms. We find statistically significant and economically important blockholder fixed effects in investment, financial, and executive compensation policies. This evidence suggests that blockholders vary in their beliefs, skills, or preferences. Different large shareholders have distinct investment and governance styles: they differ in their approaches to corporate investment and growth, their appetites for financial leverage, and their attitudes towards CEO pay. We also find blockholder fixed effects in firm performance measures, and differences in style are systematically related to firm performance differences. Our results are consistent with influence for activist, pension fund, corporate, individual, and private equity blockholders, but consistent with systematic selection for mutual funds. Finally, we analyze sources of the heterogeneity, and find that blockholders with a larger block size, board membership, direct management involvement as officers, or with a single decision maker are associated with larger effects on corporate policies and firm performance.

JEL-codes: G31 (search for similar items in EconPapers)
Date: 2007-12
New Economics Papers: this item is included in nep-bec and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Large Shareholders and Corporate Policies (2009)
Working Paper: Large Shareholders and Corporate Policies (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2006-14

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