Blockholder Exit Threats in the Presence of Private Benefits of Control

Han Wu (), Ole-Kristian Hope () and Wuyang Zhao ()

No 1180, HEC Research Papers Series from HEC Paris

Abstract: Exit theory predicts a governance role of outside blockholders’ exit threats; but this role could be ineffective if managers’ potential private benefits exceed their loss in stock-price declines caused by outside blockholders’ exit. We test this prediction using the Split-Share Structure Reform (SSSR) in China, which provided a large, exogenous, and permanent shock to the cost for outside blockholders to exit. Using a difference-in-differences design combined with propensity-score matching, we find that firms whose outside blockholders experience an increase in exit threats have a greater improvement in performance than those whose outside blockholders experience no increase. Moreover, the governance effect of exit threats is ineffective in the group of firms with the highest concern for private benefits of control. Finally, a battery of theory-motivated tests show that the documented effects are unlikely explained by outside blockholder intervention or some well-known intended effects of SSSR.

Keywords: Exit-Threat Theory; Private Benefits of Control; Liquidity; China; Split-Share Structure Reform; Operating Performance; Quasi-Experiment (search for similar items in EconPapers)
JEL-codes: F23 F30 G30 G31 G32 G34 M41 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2016-12-01
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1180

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