The effect of block ownership on future firm value and performance

Abdelhafid Benamraoui, Surendranath Rakesh Jory, Khelifa Mazouz, Neeta Shah and Orla Gough

The North American Journal of Economics and Finance, 2019, vol. 50, issue C

Abstract: This paper examines the performance of the investment decisions of block owners. The block ownership data is obtained from Dlugosz, Fahlenbrach, Gompers, and Metrick (2006). We find that firm valuation (measured by Tobin’s Q), operating performance (measured by changes in return on assets) and stock performance (measured by excess buy and hold returns) are positively and significantly related to the previous years’ level of block ownership both in terms of the size of the ownership and the number of blockholders. Our results are robust to endogeneity concerns. Regarding whether a specific blockholder is an “insider” or an “outsider” to the firm, we find that the ownership of “outside” blockholders is a key determinant in explaining future firm performance. Note though that this category makes up about two-thirds of the aggregate amount of blockholding in Dlugosz et al. (2006) database, and also includes all blockholders not classified in other categories. In general, we attribute the superior performance to the presence of more blockholders. We also find an inverse association between the volatility in blockownership and the ex-post firm performance measures.

Keywords: Block ownership; Corporate value; Financial performance; Stock return (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:50:y:2019:i:c:s1062940817302917

DOI: 10.1016/j.najef.2019.04.025

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