Large Shareholders and Corporate Policies

Abstract

Employing a new blockholder-firm panel data set in which we can track large shareholders across firms and over time, we find that firms' investment, financial, operational, and executive compensation policies vary with the particular blockholder present in a firm. The effects are strongest for activists, pension funds, and corporations, and weakest for banks, trusts, and money managers. We also find that large-shareholder fixed effects in corporate policies vary systematically with blockholder fixed effects in performance. Finally, we show that activists, pension funds, corporations, and private equity firms are more likely to influence firm policies, while mutual funds select firms based on their policies. The contribution of our paper is to show that heterogeneity in beliefs, skills, or risk preferences across large shareholders plays an important role for firms' policies and performance.JEL classification: G31; G32; G34; G35

Corporate boards and the performance of Asian firms: A meta-analysis

“…The presence of a joint board leadership structure, on the other, may facilitate the exercise of discretion promoting unified and bold but accountable decision-making that is needed for investments in high-risk projects. This conjecture is consistent with research on ownership that finds that certain types of blockholders indeed promote risky investments in R&D for similar reasons (Cronqvist & Fahlenbrach, 2009).…”

Does Corporate Governance Influence Convertible Bond Issuance?

“…For straight debt, this happens for the third largest shareholder. 6 An equity ownership of 5% is widely considered to be the threshold for considering a shareholder as "large" (i.e., a blockholder) (e.g., Agrawal and Knoeber, 1996;Cremers and Nair, 2005;Cronqvist and Fahlenbrach, 2009 We construct an alternative ownership concentration measure (ownership concentration (2)) equal to the percentage of shares held by the company's largest shareholder. Rediker and Seth (1995) and Voulgaris et al (2010), among others, use an equivalent measure.…”

The impact of foreign investors on the risk-taking of Japanese firms

“…Regardless of the target country (here, Japan), the effect of foreign investors is expected to be positive since they tend to be large institutions that have the power to influence a firm's policy (Shleifer and Vishny, 1986;Gillan and Starks, 2003;Cronqvist and Fahlenbrach, 2009). In particular, they should be able to mitigate the widespread tendency of managers to take insufficient risk.…”