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Estimating the Effects of Large Shareholders Using a Geographic Instrument

Published online by Cambridge University Press:  29 March 2011

Bo Becker ,
Henrik Cronqvist  and
Rüdiger Fahlenbrach
Bo Becker
Affiliation:
Harvard Business School, Soldiers Field, Boston, MA 02163, and NBER, bbecker@hbs.edu
Henrik Cronqvist
Affiliation:
Claremont McKenna College, Robert Day School of Economics and Finance, 500 E. 9th St., Claremont, CA 91711, hcronqvist@cmc.edu
Rüdiger Fahlenbrach
Affiliation:
École Polytechnique Fédérale de Lausanne (EPFL), Quartier UNIL-Dorigny, Extranef 211, 1015 Lausanne, Switzerland, and Swiss Finance Institute, ruediger.fahlenbrach@%20epfl.ch
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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 that 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 large, nonmanagerial individual shareholders in firms. These shareholders have a large impact on firms, controlling for selection effects.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 46 , Issue 4 , August 2011 , pp. 907 - 942
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2011

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