College of Business

We find that committed blockholders (e.g., individuals/private equity) are 6 times more likely than financial blockholders to self-identify as active shareholders. Consistent with lower agency costs, committed blockholders are less likely to be targeted by shareholder activism, are more immune to activism, and appear to be less concerned with preventing external monitoring (e.g., to have a poison pill). Textual analysis of 13D filings reveal that committed blocks use language more consistent with governance through voice rather than exit. Significant heterogeneity in firm-level governance characteristics match life-cycle changes in a firm’s shareholder base, but differences between block types remain as firms mature. We also find that previous studies on the governance role of passive investors may be misleading. Since committed blocks mechanically reduce a firms public float, they may contaminate prior Russell discontinuity studies as measures of passive investing may actually reflect variation in unobserved committed blockholders. Finally, we find that the performance of firms with a committed block is similar to that of firms with a financial blocks, consistent with dynamic equilibrium models of optimal ownership.