How Do Blockholders Hurt the Firm? The Case of Cumulative Voting

Relying on agency theory, we investigate the influences of blockholders and the potential circumstances under which heterogeneous blockholders impact firm value. We first conceptualize a model which incorporates the influences of blockholders’ shared and private benefits of control to study the connections among blockholders, firm’s governance choices, and firm value. We then develop hypotheses based on the model with respect to the cumulative voting rule. Employing endogenous treatment effects models which resolve the endogeneity issue, we conduct empirical tests on a large merged dataset of US data. The results show that the controlling blockholder, large outside blockholders, and inside blockholders can hurt the firm: A controlling blockholder negatively influences the presence of the cumulative voting rule even if the rule is positively related to firm value; An outside blockholder’s voting power has an inverted U shape relationship with the cumulative voting rule; An inside blockholder opposes the cu...