Article | Journal of Financial and Quantitative Analysis

Estimating the Effects of Large Shareholders Using a Geographic Instrument

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 large, non-managerial individual shareholders in firms. These shareholders have a large impact on firms, controlling for selection effects.

Keywords: Business and Shareholder Relations; Performance; Policy; Ownership; Selection and Staffing; Business Headquarters; Geography; Framework;

Citation:

Becker, Bo, Henrik Cronqvist, and Rudiger Fahlenbrach. "Estimating the Effects of Large Shareholders Using a Geographic Instrument ." Journal of Financial and Quantitative Analysis 46, no. 4 (August 2011): 907–942.