Large Blockholders and Stock Price Crash Risk

Abstract

This paper examines the relationship between large blockholders and stock price crash risk for the entire population of non-financial companies listed on the Swiss Exchange for the period 2003-2016. The results show that firms held by a large blockholder have a lower firm-specific crash risk than widely held firms, and the higher the proportion of voting rights, the lower the crash risk. These findings hold after taking into consideration several firm characteristics and potential endogeneity concerns. Further analysis reveals that the mitigating effect of large blockholders on crash risk is stronger in firms held by the founding family, the state or another financial company. Overall, the evidence suggests that large shareholders serve as monitors in the company and help reducing bad news concealment, leading to lower stock price crash risk.