Working Paper: NBER ID: w17393
Authors: Bo Becker; Henrik Cronqvist; Rüdiger Fahlenbrach
Abstract: Large shareholders may play an important role for firm performance and policies, but identifying this empirically presents a challenge due to the endogeneity of ownership structures. We develop and test an empirical framework which allows us to separate selection from treatment effects of large shareholders. Individual blockholders tend to hold blocks in public firms located close to where they reside. Using this empirical observation, we develop an instrument - the density of wealthy individuals near a firm's headquarters - for the presence of a large, non-managerial individual shareholder in a firm. These shareholders have a large impact on firms, controlling for selection effects.
Keywords: large shareholders; firm performance; agency problems; geographic instrument; corporate governance
JEL Codes: D31; G32; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| large non-managerial individual shareholders (G34) | firm's investments (G11) |
| large non-managerial individual shareholders (G34) | payouts to shareholders (G35) |
| large non-managerial individual shareholders (G34) | corporate cash holdings (G39) |
| large non-managerial individual shareholders (G34) | CEO pay (M12) |
| large non-managerial individual shareholders (G34) | board independence (G34) |