Finance - Theses
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ItemEssays on Blockholder and Corporate Finance( 2023-05)This thesis explores the multifaceted role of large shareholders ("blockholders") in a firm. There has been an exponential growth of the asset management industry in the last few decades, giving rise to more non-controlling blockholders in the firm. Such blockholders are important in corporate governance because the large stakes they hold incentivize them to monitor the firm. Given blockholder's importance, it is critical to understand what determines blockholder's presence. On the other hand, the evidence of blockholder's impact on firm outcomes has been mixed in the literature. This thesis helps shed light on both the determinants and impacts of blockholders in a firm. The first essay investigates how CEO incentives, i.e., the sensitivity of the CEO's wealth to firm value, affect blockholder monitoring. CEO incentives can both 1) complement blockholder monitoring by punishing the CEO harder when a dissatisfied blockholder exits, and 2) substitute blockholder monitoring by reducing the CEO-shareholder conflict. I model the relation between managerial incentives and blockholder monitoring and show the substitution effect dominates. I also find empirical evidence of the substitution effect: blockholding in a firm is lower when CEO incentives are higher, and this negative relation is stronger in firms where blockholders are there to monitor. In the second essay, I look at how a firm's covenant violations affect blockholders' stakes in the firm. After covenant violations, creditors have more control over the firm by renegotiating debt contracts. It has been documented that creditors use the increased control to help turn around the firm. I find that blockholders have higher stakes in a firm after its covenant violations, consistent with the notion that blockholders try to gain from a firm's recovery. Blockholders who lack the ability to maximize value on their own are more likely to take the chance to gain from the recovery. Consistently, I find that blockholders who are experienced in governance activities are less likely to have higher stakes after covenant violations. In the third essay, which is a joint work with Yifan Zhou, we find that blockholders are positively associated a firm's crisis recovery. We discover that during the 2008-09 Global Financial Crisis, blockholders were associated with i) more votes against manager-initiated proposals, ii) a higher probability of appointing a new CEO and/or director, and iii) issuance of less net debt. These firm decisions are in turn associated with superior post-crisis performances.