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Abstract
This dissertation consists of three stand-alone research projects on large shareholders, corporate environments and firm valuation. The first study investigates reporting transparency, corporate control and corporate diversification as determinants of financial institutional blockholdings by using a unique dataset of financial institution ownership in 2002 and 2006. I find financial blockholders are likely present in firms with better reporting transparency, lower expropriation risk and higher corporate diversification. Importantly, financial blockholders are more likely to rely on firm-level attributes when selecting firms with relatively poor information environments or firms located in countries with a weak governance environment. Overall, the study highlights the importance of firm-level attributes in large ownership acquisition decisions of financial institutions. The second essay provides a new empirical analysis of determinants of corporate ownership structure involving multiple blockholders. The results generally support the predictions from multiple-block theories in relation to competition for control. There is also some evidence supporting the theory of governance through “threats of exit”. Multiple blockholder structures are more prevalent in firms with high disclosure quality, abundant free cash flows and strong operating performance, but less frequent in matured, large and regulated firms, and firms with high turnover and firm-specific risk. Multiple blockholders are likely to emerge when one of the blockholders is an independent financial institution or there are no controlling shareholders in the firm. Most of the above factors are also important in determining an ownership structure with multiple financial institutional (minority) blockholders, but the theory of governance through “threats of exit” is more supportive in the setting of multiple financial blockholders. The third essay investigates the association between multiple blockholders and firm valuation. Theoretically, multiple large shareholders can engage in efficient monitoring or in the extraction of private benefits through expropriation. The study finds the presence and number of multiple blockholders, beyond the largest shareholder, are negatively related to firm valuation. Additional evidence also suggests that the role of multiple blockholders might also vary with a firm’s information and institutional environments. The negative link between multiple blockholder structure and firm valuation is more pronounced in firms with relatively poor information environments, or firms located in countries with a weakly enforced governance environment. Overall, this study supports the coalition formation hypothesis that multiple large shareholder are prone to form a controlling formation and be in cahoots with each other to divert corporate resources for private benefits, thereby reducing firm value.