DP9090 The Value of Control and the Costs of Illiquidity

2011

Abstract This paper investigates empirically the illiquidity of majority blocks of shares in the context of a search model of block trades. The search model incorporates two aspects of illiquidity, or search frictions. First, upon a liquidity shock, the incumbent blockholder may be forced to sell to a less effi cient buyer. Second, a block liquidity sale may occur at a fire sale price.

IO: Empirical Studies of Firms & Markets eJournal, 2019

The trust-free nature of blockchain-based systems challenges the role of traditional platform providers and enables the creation of new, intermediary-free markets. Despite the growing number of such markets, the impact of the blockchain's configuration on market outcomes remains unclear. In this study, we utilize order-level data from realworld financial markets to explore the impact of the blockchain parameters block size and block creation time on the quality of decentralized markets. More specifically, we find that increasing the blocks' capacity improves market activity, while higher block frequencies impose a trade-off between higher turnovers and lower trade sizes. In addition, we identify the block creation time and block size as core drivers of daily and intraday liquidity, respectively. In consequence, improving liquidity goes hand in hand with a higher activity. However, the reciprocal relationship between blockchain parameters and the increasing price impact of a ...

The Financial Review, 2007

Block sales following IPOs are related to the IPOs' value relative to an estimate of intrinsic value, opening-trade return, and IPO size. Overvalued IPOs experience more block sales than undervalued IPOs. IPOs with high block sales outperform IPOs with low block sales from 20 days after IPO through lockup expiration; however, IPOs with high block sales underperform IPOs with low block sales from lockup expiration through the third year after the IPO. The results indicate that block traders are advantaged relative to other traders; whether the advantage is based on superior information or superior valuation capabilities is unknown.

2010

We study the determinants of private benefits of control in negotiated block transactions. We estimate the block pricing model in Burkart, Gromb and Panunzi (2000) explicitly accounting for both block premiums and block discounts in the data. The evidence suggests that the occurrence of a block premium or discount depends on the controlling block holder's ability to fight a potential tender offer for the target's stock.

This paper analyses price effects of block trades for the 30 stocks that comprise the Dow Jones Industrial Average for the period January 1993 to October 2001. Previous research shows prices revert following sales, but remain high after buys, creating an asymmetry between block purchases and sales. Extant literature has offered several conjectures as to the source of the asymmetry. We replicate the asymmetry documented in previous literature and provide a new conjecture as to its source, specifically bid-ask bias. Results show that purging block trade price effects of bid-ask bias produces symmetry in the behaviour of block trade price effects. This suggests research design issues are driving the asymmetry documented in previous literature, and that purchases are not more informative than sales.

Journal of Economics and Business, 2010

Pacific-Basin Finance Journal, 2005

In the Chinese stock markets, there are A-shares and B-shares. Both share-types have identical cash flow rights but different ownership structures (i.e., A-shares are owned by local Chinese citizens and B-shares are owned primarily by foreigners), causing B-shares to be less liquid relative to Ashares. However, even though B-shares have much wider bid-ask spreads than A-shares, both sharetypes are subject to the same 10% daily price limit regulation. As such, B-shares, simply due to their wider spreads, may be more inclined than A-shares to hit price limits. Our empirical results support this contention. The findings have policy implications. First, given wide spreads for illiquid stocks, exchanges may consider using midpoint prices (between bid and ask prices) to establish price limit ranges for illiquid stocks. In addition, and perhaps more importantly, exchanges may consider using wider price limits for less liquid classes of stocks. D

SSRN Electronic Journal, 2019

This paper analyzes the role of blockholders in corporate governance. In particular, we investigate a possible channel through which blockholders can exert an impact on managerial performance and firm value. When an individual or a group of individuals acquires beneficial ownership of more than 5% of a class of a company's equity securities, they are required to file a Schedule 13D or 13G with the Securities and Exchange Commission (SEC). Here 13D filing is required if the filer intends to exert control over management. If the filer is an investor who is not interested in pursuing an activist agenda, the investor may file a Schedule 13G instead, which is shorter and requires less information. For expositional convenience, we call the latter type of investors passive blockholders. Although the role of active (13D) blockholders in corporate governance and its effect on firm value have been extensively studied, the role of passive (13G) blockholders has been the subject of relatively few studies. This study is an attempt to fill this gap in the literature. Our main thesis is that passive blockholders exert an impact on managerial behavior and shareholder wealth by increasing the informational efficiency of share prices. Shleifer and Vishny (1986) offer an analytical model in which the presence of a large shareholder provides a partial solution to the free-rider problem associated with managerial monitoring in a corporation with many small shareholders. Brickley, Lease, and Smith (1988) analyze the role of blockholders in improving shareholder rights through antitakeover measures.

Journal of International Financial Markets, Institutions and Money, 2013

This paper examines the price impact of block trades for the 124 companies that comprise all listed firms in the Saudi stock market (SSM). We use high frequency intraday data (one minute intervals) for the period 2005-2008 to provide out of sample evidence of the determinants of price impact. We find an asymmetric price impact of 0.5% for block purchases and -0.38% for block sales. We document a price continuation post block trades and a price reversal after block sales. Sellers of block trades in the Saudi market pay higher liquidity premiums than buyers of block trades. However, on average, the price effect of a block trade is small and short-lived suggesting that resiliency is high in the market. Moreover, we find a direct relationship between the size of the trades and the level of information asymmetry in the market. Despite the structural differences of the SSM, the intraday pattern of price impacts is similar to patterns documented in other markets, namely an inverse J-shaped pattern. Finally, sophisticated traders can gain abnormal profits in the SSM through "free riding", a trader can benefit from the overreaction before the block trade and price reversal after the block trade.

SSRN Electronic Journal, 2000

This paper analyses price effects of block trades for the 30 stocks that comprise the Dow Jones Industrial Average for the period January 1993 to October 2001. Previous research shows prices revert following sales, but remain high after buys, creating an asymmetry between block purchases and sales. Extant literature has offered several conjectures as to the source of the asymmetry. We replicate the asymmetry documented in previous literature and provide a new conjecture as to its source, specifically bid-ask bias. Results show that purging block trade price effects of bid-ask bias produces symmetry in the behaviour of block trade price effects. This suggests research design issues are driving the asymmetry documented in previous literature, and that purchases are not more informative than sales.