The Cost of Multiple Large Shareholders

C. X. Cai, D. Hillier, Jun Wang

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Abstract

Previous research argues that large noncontrolling shareholders enhance firm value because they deter expropriation by the controlling shareholder. We propose that the conflicting incentives faced by large shareholders may induce a nonlinear relationship between the relative size of large shareholdings and firm value. Consistent with this prediction, we present evidence that there are costs to having a second (and third) largest shareholder, especially when the largest shareholdings are similar in size. Our results are robust to various relative size proxies, firm performance measures, model specifications, and potential endogeneity issues.Publisher statement: This is the peer reviewed version of the following article: Cai, C. X. , Hillier, D. and Wang, J. (2016) The Cost of Multiple Large Shareholders. Financial Management, volume 45 (2): 401-430, which has been published in final form at http://dx.doi.org/10.1111/fima.12090 This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Original languageEnglish
Pages (from-to)401-430
Number of pages30
JournalFinancial Management
Volume45
Issue number2
Early online date27 Feb 2015
DOIs
Publication statusPublished - 1 Sep 2016

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Bibliographical note

This is the peer reviewed version of the following article: Cai, C. X. , Hillier, D. and Wang, J. (2016) The Cost of Multiple Large Shareholders. Financial Management, volume 45 (2): 401-430, which has been published in final form at http://dx.doi.org/10.1111/fima.12090 This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

Keywords

  • Multiple large shareholders
  • firm value
  • Tobin’s Q
  • Non-controlling large shareholders
  • monitoring
  • collusion

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