EXPLAINING VARIANCE IN THE PERFORMANCE OF LONG-TERM CORPORATE BLOCKHOLDERS

✍ Scribed by JAMES DAWSON BOGERT

• Publisher: John Wiley and Sons
• Year: 1996
• Tongue: English
• Weight: 595 KB
• Volume: 17
• Category: Article
• ISSN: 0143-2095
• DOI: 10.1002/(sici)1097-0266(199603)17:3<243::aid-smj802>3.0.co;2-d

✦ Synopsis

This study measures and explains variance in the performance of corporations that purchase and hold blocks of stock in other corporations. Results show that following the purchase of between 5 and 50 percent of a target corporation 's common stock, blockholder performance improves on average for 15 months. After 3, 7, 11, and 15-month intervals, performance is positively associated with ( I ) investments in targets that are suppliers or customers, (2) targets that make cross-investments into the equity securities of the blockholder, and (3) a blockholding value ratio that contrasts the value of the blockholding with the value of the blockholder.

Corporations frequently acquire minority-level blocks of stock in other 'target' corporations . Although motivations for these investments vary, most blockholdings precede a takeover or sale of the stock within 3 years, and only about a third are maintained for more than 3 years. The duration of ownership seems to be important, because research has revealed an association between corporate block ownership that lasts for more than 3 years and negative target performance . Moreover, because the negative target performance trend begins shortly after the blockholding is disclosed and persists for years , it is possible that the negative target performance is in some way caused by the blockholder.

The corporate blockholder-target performance relationship poses some interesting questions. How could target interaction with a corporate blockholder result in improved corporate blockholder performance? How does target crossinvestment affect corporate blockholder behavior