ABSTRACT
IT IS NOW WIDELY RECOGNIZED THAT COMPANIES have to set a number of mechanisms to control the agency problems, which arise whenever managers have incentives to pursue their own interests at the expense of those of shareholders. In an extensive survey of corporate governance, Shleifer and Vishny (1997) show that legal protection alone is not sufficient to ensure investor protection and that other mechanisms, such as ownership concentration, could be the solution to these, so called, agency problems. However, the empirical evidence provided to date on the role and effectiveness of such alternative mechanisms is mixed. For example, Demsetz and Lehn (1985) find no cross-sectional relationship between the concentration of shareholdings and the accounting rates of return. Similarly,
Agrawal and Knoeber (1996) show that the relationship between large institutional shareholding or blockholding and corporate performance as measured by Tobins Q is weak.2 In contrast, other studies show that large shareholders play a significant role in top management turnover (e.g., Franks and Mayer, 1994; Kaplan and Minton, 1994; Kang and Shivdasani, 1995), in take-overs (Shleifer and Vishny, 1986; Agrawal and Mandelker, 1990; Sudarsanam, 1996), in the certification of initial public offerings (Lin, 1996) and that block purchases by large shareholders are typically followed by an increase in value, in top management turnover, in financial performance and in asset sales (e.g., Mikkelson and Ruback, 1985; Shome and Singh, 1995; Bethel et al., 1998). Other studies that specifically analyze shareholder activism also yield mixed results.3
