Set for Success? Minority Blockholders and Firm Value

Abstract: The purpose of this study is to investigate the firm value effect of the relative voting power between the minority blockholders and the largest shareholder in firms, and the excess voting rights relative to capital rights for minority blockholders. The Holdings database was used to collect detailed ownership data on a sample of 266 listed Swedish firms corresponding to 1 781 firm-year while financial data were retrieved from Orbis. The empirical model was developed using an OLS regression, controlling for fixed effects and clustered standard errors. The results suggest that firm values are positively related to a more equal distribution of voting rights between the coalition of minority blockholders and the largest blockholder in the firm. Furthermore, we find indications that the excess votes of institutional minority blockholders are positively related to firm values, suggesting a novel interpretation of the entrenchment effect. Firm values may be enhanced when institutional minority blockholders carry excess votes in relation to their invested capital, since the excess votes increase their power of voice in monitoring the firm and other blockholders for a fixed level of investment.