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Large Shareholders and Corporate Policies

Author

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  • Cronqvist, Henrik

    (The Ohio State University)

  • Fahlenbrach, Rüdiger

    (The Ohio State Unversity)

Abstract

We develop an empirical framework that allows us to analyze the effects of heterogeneity across large shareholders, using a new blockholder-firm panel data set in which we can track all unique blockholders among large public U.S. 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 appetite 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, hut consistent with systematic selection for mutual funds. Finally, we analyze sources of the heterogeneity, and find that blockholders with larger block size, board membership, or direct management involvement as officers are associated with larger effects on corporate policies and firm performance.

Suggested Citation

  • Cronqvist, Henrik & Fahlenbrach, Rüdiger, 2007. "Large Shareholders and Corporate Policies," SIFR Research Report Series 60, Institute for Financial Research.
    • Handle: RePEc:hhs:sifrwp:0060
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    More about this item

    Keywords

    Large shareholders; blockholders; corporate policies; firm performance;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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