Ownership and Governance Style: New Evidence from Nonfinancial Blockholders

Abstract

Different types of blockholders govern differently. Committed (non-financial) blockholders are 6 times more likely to self-identify as active, and the language of their filings reflects governance through voice rather than exit. These differences in governance persist over a firm’s life cycle. We also find that governance by committed blocks may contaminate previous studies’ economic interpretation about governance by passive investors around index thresholds. Finally, the performance of firms with a committed block is similar to firms with a financial block, consistent with dynamic equilibrium models of optimal ownership. Firms with committed blockholders appear to have lower agency costs.