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The Importance of Blockholder Heterogeneity: Security Market Effects and Follow-On Activities

Published online by Cambridge University Press:  09 November 2018

Jim Hsieh  and
Tao-Hsien Dolly King
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Abstract

Recent research on blockholders focuses on activist hedge funds and documents positive stock but negative bond returns. This study investigates the role of blockholder heterogeneity on security market effects and target firm follow-on activities across three important dimensions: identity, motive, and purchasing method. We show that target firms’ security returns and post-acquisition activities strongly correlate with blockholder heterogeneity. Further, bond returns are significantly positive for firms with blockholders’ debt-assistance motive while both stock and bond returns are significantly negative in private placements. Overall, our findings highlight the importance of blockholder heterogeneity on the valuation and performance consequences in block acquisitions.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 54 , Issue 1 , February 2019 , pp. 101 - 153
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

King is grateful for the 2010 summer research grant from the Dean’s Office of the Belk College of Business at the University of North Carolina at Charlotte. We acknowledge comments from Steve Christophe, Amy Edwards, Mike Ferri, Jarrad Harford (the editor), Andrew Karolyi, Stas Nikolova, Laura Starks, Lei Sun, Ralph Walkling, and participants in seminars at National Chiao Tung University, the U.S. Securities and Exchange Commission, the University of Cincinnati, and the 2010 National Taiwan University International Conference on Finance. Special thanks are due to Clifford Holderness (the referee) for numerous insightful suggestions. Chensong Li, Nischala Reddy, and Jessica Rogers provided excellent research assistance.

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