Beyond the Biggest: Do Other Large Shareholders Influence Corporate Valuations?

This paper examines the relationship between corporate valuations and the presence, size, incentives, and identity of multiple large shareholders. Using data on a large number of firms across Western Europe, we find that about one-third of all firms, and over 40 percent of firms with one large owner, have two or more owners that each holds more than 10 percent of the voting rights. We find that large shareholders – beyond the biggest – boost corporate valuations, but this result holds conditional on the characteristics of these other large owners. Specifically, we find that the distribution of voting and cash flow rights across large shareholders matters. For example, only when the gap in voting rights between the first and the second largest shareholders is small does the second largest shareholder increase corporate valuations. Furthermore, the evidence stresses that only when large shareholders have sound incentives – as measured by cash-flow rights – do we observe a strong, positive relationship between corporate valuations and the existence of large owners.