The Effect of Blockholder Ownership on Firm Value in Market - and Control - Based Governance Systems

We use Granger-tests to examine the causal relationship between blockholder ownership and value of the largest EU and US companies. Previous studies on US data have found no systematic effect, but we propose that these results may not carry over to continental Europe, where ownership concentration is higher, the level of investor protection is lower, and influential blockholders may have other objectives than shareholder value. In accordance with previous research, we find no significant causal effects either way in the US/UK. But in continental Europe we find a negative effect of blockholder ownership on firm value. Further analysis reveals that this effect is significant only for companies with high initial levels of blockholder ownership (> 10%). We interpret this as evidence that ownership concentration in continental Europe may be too high from a minority shareholder value viewpoint. JEL classifications: G32, L20