The question if and how the ownership structure influences the market value of a firm is one of the most extensive studied subjects in corporate governance. Three main determinants were identified during more than 30 years of research:
1. The size of the block
2. The legal and regulatory environment
3. The type of blockholder
This work uses the acquisition of voting blocks by different types of acquirers (point 3) to determine how the shareholder structure in Germany (point 2) influences the valuation of a firm. It is demonstrated that the heterogeneity between block acquirers has to be taken into account, i.e. the size of a block (acquisition) itself (point 1) is not a distinctive enough instrument to determine valuation aspects.
The main results are that a block acquisition by banks in Germany results in a negative value effect. A cumulated abnormal return (CAR) of -2.7% in the event-period [-20,20] is the (average) consequence of a block-acquisition by a bank. A strong and highly significant result is the positive valuation effect when hedge funds acquire blocks in their targets. Average cumulated abnormal return is 5% in the period [-20,-1]. Corporations as
block-acquirer cause also positive CAR’s (1%). No significant effects are found following the announcement by mutual funds, insurances and individual investors.
The work proceeds as follows: In chapter 2 the literature on general corporate governance and especially the literature concerned with the relation between shareholder structure and valuation is reviewed. The data for this study and its legal sources is described in chapter 3 and chapter 4 gives a short descriptive statistic. The main chapter, chapter 5, starts with an explanation why the event-study methodology is especially eligible to answer the question of how blockholding influences valuation. Then the used methodology is
described and the results of the empirical work presented. These are put in the context of the respective literature and research. Chapter 6 is a short summary of the most important
findings and concludes the work.
Table of Contents
1. Introduction
2. Corporate Governance, Shareholder Structure and Valuation
3. Legal Background and Data
3.1 Legal Background
3.2 The Events
3.3 The Acquirer-Groups
3.4 Research on Block-Magnitude
4. Descriptive statistic
5. Event Study
5.1 Methodology
5.2 Results
5.2.1 By Acquirer Group
5.2.1.a Mutual Fund
5.2.1.b Corporation
5.2.1.c Bank
5.2.1.d Individual Investor
5.2.1.e Insurance
5.2.1.f Hedge Fund
5.2.1.g Private Equity
5.2.2 By Size of Acquired Block
5.2.2.a Blocksize 3% - 5%
5.2.2.b Blocksize 5% - 10 %
5.2.2.c Blocksize 10% - 15%
5.2.2.d Blocksize 15% - 20%
5.2.2.e Blocksize 20% - 25%
5.2.2.f Blocksize 25% - 30%
6. Concluding Remark
Research Objectives and Core Topics
This thesis aims to determine how the acquisition of voting blocks by different types of acquirers influences the market valuation of German firms. By analyzing a comprehensive dataset of block acquisitions, the research investigates whether specific blockholder identities—such as banks, hedge funds, or corporations—generate distinct value effects, moving beyond the traditional focus on block size alone.
- Analysis of the relationship between shareholder structure and firm valuation in Germany.
- Evaluation of value effects based on distinct blockholder types using event-study methodology.
- Investigation of the impact of block magnitude on corporate governance and valuation.
- Comparison of market reactions to acquisitions by institutional vs. non-institutional investors.
- Examination of the "effective control" threshold and its implications for firm performance.
Excerpt from the Book
3. The type of blockholder
All the studies I have mentioned do not distinguish between the types of blockholder. They pay attention mainly to the magnitudes of the blocks. Holderness (2003) mentions at the end of his paper, that “Perhaps above all, the academic literature highlights the richness of blockholders. An outside blockholder, for instance, has a different set of incentives than does a CEO blockholder. […] Blockholders that are corporation present a set of issues not found with those who are individuals.” [p.60]
Already 15 years before he wrote that Tobin’s Q is “statistically equivalent for majority-shareholder firms and firms with relatively diffuse stock ownership” and concludes “that the identity of large-block shareholders, although ignored in the literature, is potentially important.”
Most recently Cronqvist and Fahlenbrach (2007) find significant effects when blockholder types are fixed for a broad range of important corporate policies. With their data they demonstrate that, when just point 1 (the magnitude of shareholding) is considered, an effect of zero does not mean that large shareholders are not important. “It is the heterogeneity across blockholders that leads to a dispersion of the fixed effects that is statistically […] important.”
Summary of Chapters
1. Introduction: Outlines the research question regarding the influence of ownership structure on firm valuation and presents the main empirical findings concerning different acquirer types.
2. Corporate Governance, Shareholder Structure and Valuation: Reviews the theoretical foundation of corporate governance, focusing on the agency problem and the separation of ownership and control.
3. Legal Background and Data: Describes the regulatory framework for block disclosures in Germany and details the construction and cleaning process of the dataset used for the event study.
4. Descriptive statistic: Provides an overview of the distribution of 1,688 events across different acquirer groups and block magnitudes.
5. Event Study: Explains the event-study methodology, including the market model and test statistics, and presents empirical results segmented by acquirer groups and block sizes.
6. Concluding Remark: Summarizes the key findings, noting the distinct positive impact of hedge funds and the negative market reaction to bank block acquisitions.
Keywords
Corporate Governance, Shareholder Structure, Firm Valuation, Block Acquisition, Event Study, Germany, Bank Influence, Hedge Fund Activism, Ownership Concentration, Minority Shareholders, Agency Costs, Cumulative Abnormal Return, Bafin, Institutional Investors, Private Equity
Frequently Asked Questions
What is the primary objective of this research?
The research aims to clarify how different types of block acquirers influence the market value of German firms, specifically testing if the identity of the blockholder matters more than the mere size of the acquired stake.
What are the central thematic fields covered?
The study centers on corporate governance, shareholder structures, the legal environment for stock acquisitions in Germany, and the empirical measurement of abnormal stock returns.
What methodology is used to evaluate the valuation effects?
The author employs an event-study methodology, utilizing an OLS market model adjusted for daily returns, and applies standardized cross-sectional tests to determine abnormal returns.
What does the main body of the work address?
The main body focuses on the empirical analysis of block acquisitions, segmenting the data by acquirer groups (banks, hedge funds, etc.) and block size thresholds, while contextualizing these results within existing corporate governance literature.
Which key groups of blockholders are analyzed?
The study examines mutual funds, corporations, banks, individual investors, insurance companies, hedge funds, and private equity firms.
What are the primary findings regarding bank involvement?
The research finds that block acquisitions by banks in Germany are associated with a negative value effect, potentially reflecting creditor interests rather than shareholder value maximization.
How do hedge funds affect firm value according to the study?
Hedge fund block acquisitions exhibit a strong positive valuation effect, with a cumulative abnormal return of 4.38% in the observed period.
What role does block magnitude play in firm control?
The study analyzes block sizes from 3% to 30%, suggesting that thresholds around 10% and 25% are critical for exercising influence and "effective control" over target companies.
- Quote paper
- Dennis Eggert (Author), 2008, Value effects through voting block acquisition – an empirical and comprehensive analysis for Germany, Munich, GRIN Verlag, https://www.grin.com/document/112170
